Thank you for standing by, and welcome to the Tencent Holdings Limited 2017 third quarter results announcement conference call. At this time, all participants are in listen-only mode. There will be a presentation, followed by the question and answer session. If you wish to ask question, you will need to press star one on your telephone to join the question queue. Your name will be announced when it is your turn to ask a question. If you wish to cancel your re- questions, please press the pound or hash key. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Miss Jane Yip from Tencent. Please go ahead, Miss Yip.
Thank you. Good evening. Welcome to our third quarter results 2017 conference call. I'm Jane Yip from the IR team of Tencent. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited, Non-GAAP financial measures that should be considered in addition to, but not as a substitute for, measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and Non-GAAP measures, please refer to our disclosure documents on the IR section of our website. Let me introduce the management team on the call tonight.
We have our Chairman and CEO, Pony Ma; President Martin Lau; Chief Strategy Officer James Mitchell; and Chief Financial Officer John Lo. Pony will kick off with a short overview. Martin will discuss strategic highlights. James will speak to business overview. John will go through the financials before we take your questions. I will now turn the call over to Pony Ma.
Okay. Thank you, Jane. Good evening, everyone. Thank you for joining us. During the third quarter of 2017, we record a strong user traction and revenue growth across games, digital content, online advertising, and payment businesses. Our video platform gained audience and video revenue market share, becoming China's top online video platform in terms of mobile daily active users and monthly subscriptions. In November, we list our online literature platform in Hong Kong. The successful listing reflects the value of our years of investment in the business. We believe our multifaceted digital content businesses are synergistic with each other and allow us to deliver unique content to our users. We will continue to invest in our platforms and technologies to strengthen our content ecosystem. Now let me highlight the key financial numbers for you. John will provide more details in the financial section.
Our revenue was RMB 65.2 billion, up 61% year-on-year. Non-GAAP operating profit was RMB 21.6 billion, up 44% year-on-year. Non-GAAP net profit to shareholders was RMB 17.1 billion, up 45% year-on-year. Moving on to our online platforms. Combined MAU of Weixin and WeChat increased 16% year-on-year to 980 million. Daily text messages increased 20% year-on-year, indicating increased engagement. Total MAU for QQ was 343 million, within which smart devices MAU was 153 million, down 3% year-on-year due to fewer casual users, while engagement with core users increased. Smart device MAU for users below 21 years old was up year-on-year. PCU, including PC and mobile, increased 9% year-on-year to 272 million. Popular features within QQ, such as Kandian news feeds increased average user time spent within QQ. For social network, Qzone smart device MAU was 552 million.
In games, we maintain our leadership in mobile and PC as measured by users and revenues. We expand our game genres, strengthen into strategic games. On our media business, good users and traffic at healthy rates, and we sustained leadership in the news, video, music, and literature categories while developing new verticals such as live streaming and comics. In mobile utilities, we remained the China industry leader in mobile security and mobile browser and Android app store. With that, I will pass to Martin to discuss strategic highlights.
Thank you, Pony. Good evening and good morning, everybody. In this section, I would like to give you an update on our video business, which has consistently gained audience market share over the past few quarters. As of September, we believe Tencent Video has achieved leadership in terms of average daily active mobile users.
We have achieved this by leveraging our large and highly engaged user base, which are active in consuming content, and at the same time, making progress in two important areas. Firstly, we have a comprehensive content strategy, which I'll elaborate in a minute. Secondly, our expertise in content curation, program scheduling, and content recommendation allowed us to make users engaged on a continuous basis on our platform. Driven by traffic growth, our online video revenue increased more than 100% year-on-year in the third quarter of 2017, within which our video advertising revenue grew over 70% year-on-year. Our video subscriber base more than doubled year-on-year to exceed 43 million, driving equally strong subscription revenue growth. As you can see recently, App Annie ranked Tencent Video number one in terms of China's iOS top grossing chart for the entertainment category.
In terms of our video content strategy, we do have a comprehensive video content strategy, which I would like to summarize in a succinct way as follows. For drama, which is the most popular and revenue-generating type of content, we invest in exclusivity that elevates our brand, as well as drives subscription and ad revenue. We target the content to right users within our large user base and have successfully expanded young female user base in recent quarters. For variety show, we have accumulated expertise in co-producing differentiated shows tailored to young audience. For example, we co-produced a very popular singing contest called "The Coming One," which is the most viewed talent show in our platform during the third quarter. For animation, we cooperated with leading domestic studios and also commissioned top-tier anime studios to create anime based on Chinese online literature IP.
These anime, in turn, can support our game business. For example, we're creating a game based on a famous literature IP called "Fighter of the Destiny." Later we created a Tencent-commissioned anime. Over time, we're going to turn it into a TV drama series. For movie, we have a rich library comprised of domestic and Hollywood studio productions. Leveraging our logged-in user base and data analytics, we can target and alert potential viewers when a new movie become available in our platform. For documentary, we partner with leading studios globally, and in some cases, co-finance their productions. Recently, we released "Blue Planet II," a highly acclaimed and exclusively licensed documentary from BBC. We believe we're increasingly recognized as a preferred online partner for publishing niche, but highly influential content in China.
Within our expanding content catalog, we are optimizing the proportion of licensed and original content, especially in the past few quarters. We have invested quite heavily in original content. For example, our original content, "Candle in the Tomb," season one and two were ranked most-watched drama series by video views and attracted over 10 million monthly subscriptions. To succeed in original content, we invest heavily to expand our talent pool and accumulate key IP collection. Internally, we established production teams comprising producers, screenwriters, and editors. Introduced a review mechanism to better manage the selection and production of original content. Externally, we have invested in a number of leading studios, which are specialized in producing different content genres. We draw on our other businesses, especially China Literature, to source differentiated IPs.
In turn, we amplify user exposure to popular video content by creating several media formats, in particular, games developed out of the same video IP. Our investment on original content generates benefits for us in a number of ways. First, we can tailor content to cater to our online audience, whose preferences often differ from traditional TV audience. Second, we have total control over the content on a long-term basis. Third, it allows us to have a share in the upstream profit pool of content production. Fourth, we can use high-quality exclusive original content to educate our users to pay for monthly subscriptions. While the online video sector as a whole is still making losses, we will continue to invest for the long run. We view online video business as a strategic priority, given it is a high-engagement product.
In terms of time spent, it is second only to social. Online video is an important component of our cross-media IP strategy, and also our investment has generated positive traction in terms of market share and revenue growth. With that, I'll pass to James to talk about our business review.
Good evening and good morning. In the third quarter of 2017, our total revenue grew 61% year-on-year. VAS represented 65% of total revenue, of which online games contributed 41% and social networks 24%. Online advertising was 17% of total revenue, and the other segment accounted for 18% of total revenue, within which payment-related services and cloud services delivered triple-digit year-on-year revenue growth rates. The other segment revenue in aggregate increased 143% year-on-year and increased 25% quarter-on-quarter. For value-added services, segment revenue was RMB 42.1 billion in the third quarter, up 51% year-on-year and up 14% quarter-on-quarter. Social networks revenue was RMB 15.3 billion, up 56% year-on-year and up 18% quarter-on-quarter. Video streaming subscriptions, music live broadcast activities revenue, and game-related item sales were the main contributors to the year-on-year and the quarter-on-quarter growth rates.
Total VAS subscriptions, including our VIP products, our video products, our music products, and so forth, increased by 19% year-on-year to 125 million subscriptions. Online games revenue was RMB 26.8 billion, up 48% year-on-year and up 13% quarter-on-quarter. Increased users and monetization for our key smartphone games and new smartphone game releases, as well as expansion packs for our major PC games, drove the year-on-year and quarter-on-quarter growth. Turning to social networks, we introduced a smart transport solution for Weixin users. By generating a Mini Program QR Code in their phones to be scanned at the point of transaction, users can instantly pay for public transport fares, even in areas where they don't have internet access. In Mini Programs, we continue to enrich functionalities, most recently adding new tools that empower retailers to integrate offline and online resources to grow their businesses more efficiently.
According to our latest survey, the top 5 Mini Program categories by monthly visits include transportation, online shopping, tools, lifestyle services, and IT services. For QQ, we're strengthening content curation, particularly for our younger user base. Daily active users and time spent in our newsfeed service, Kandian, continued to increase. Recently, we introduced a pop-up feature, Topics, to help users discover trending content more easily. Our esports app, Penguin Esports, is also seeing rapid growth in live broadcast views and exceeded 10 million daily active users. This app leverages Tencent's leadership in games and esports tournaments, facilitating interactions among gamers and promoting the development of esports. Looking at PC client games, revenue grew 27% year-on-year and grew 7% quarter-on-quarter to RMB 14.6 billion. Active users declined year-on-year for our overall PC game portfolio due to users increasing time spent on smartphone games.
ARPU generally increased year-on-year and quarter-on-quarter, driven by key titles including "League of Legends", "Dungeon and Fighter", and "CrossFire". Touching on a few of these important titles, "League of Legends" for the first time held its "League of Legends" world championship in China. The finale in Beijing in early November attracted over 60 million unique viewers, placing it amongst the most-watched live sports events of any kind this year in China. "FIFA Online 3" recorded solid revenue growth as its paying ratio increased, benefiting from synchronization between in-game events and offline activities, such as the China National Team's World Cup qualifying games and the European League season kickoffs. "Dungeon and Fighter" received enthusiastic user feedback for its latest content update and gift packs, and we've commissioned a cartoon series based on "Dungeon and Fighter", which accumulated over 500 million video views since launch.
A new game, "MapleStory 2", began open beta testing in September. For smartphone games, revenue was RMB 18.2 billion, up 84% year-on-year and up 23% quarter-on-quarter. Active users and ARPU grew year-on-year and quarter-on-quarter, driven particularly by our mid-core games. During the period, we released six games, three developed in-house and three licensed. Within the competitive player-versus-player genre of games, "Honor of Kings" esports continued to gain popularity, and "Contra Returns" recorded its first full quarter of monetization. In the strategy genre, we released "Kings of Chaos" during the quarter, which brought us to leadership in the category. "Kings of Chaos" ranked number 8 in iOS China's top grossing chart in September. In the role-playing game genre, we released two games based on originally PC intellectual properties, "Legend of XuanYuan Mobile" and "Journey to Fairyland Mobile" during the quarter, and both received strong responses from gamers.
We've recently seen very strong user interest in an emerging genre of games, survival shooters. Overnight, we released a survival shooter expansion pack called "Deserted Island" for our "CrossFire" mobile game, and later this month, we'll release a new survival shooter game, "Glorious Mission". Each of these titles has already accumulated over 20 million registrations within their first week of availability. For online advertising, our revenue was RMB 11 billion, up 48% year-on-year and up 9% quarter-on-quarter. Mobile contributed about 90% of our advertising revenue. Our media advertising revenue was RMB 4.1 billion, up 29% year-on-year and broadly stable quarter-on-quarter. Our video platform contributed most to this year-on-year and quarter-to-quarter revenue growth. Popular drama series such as "Nothing Gold Can Stay" and our self-commissioned variety shows such as "Roast!", drove substantial increases in video traffic and revenue.
Our news ad revenue declined year-on-year versus the high base from the Olympics last year, and it was also soft quarter-on-quarter as we reduced advertising inventory in our Kuaibao newsfeed product while we revamped its advertising system. We have several of the leading newsfeed products in China, but we're currently focused on optimizing their user experience, which should in turn increase long-term user and revenue market share. Our social and others advertising revenue was RMB 6.9 billion, up 63% year-on-year and up 14% quarter-on-quarter, contributed primarily by Weixin properties, our Android-based app store, Ying Yong Bao, and our ad network. The ad fill rate in WeChat Moments increased, benefiting from stronger advertising demand from existing and new advertisers as the number of Moments advertisers grew over 30% quarter-on-quarter. With that, I'll pass on to John.
Hello, everyone. For the third quarter of 2017, our total revenue was RMB 65.2 billion, up 61% year-on-year or 15% quarter-on-quarter. Cost of revenues increased by 81% to RMB 33.5 billion for the third quarter of 2017 on a year-on-year basis. The increase primarily reflected greater sharing and content cost of payment related services, as well as channel costs. Gross profit was RMB 31.7 billion, up 45% year-on-year or 12% quarter-on-quarter. Net other gains were at RMB 3.9 billion, which primarily consists of deemed disposal gains arising from the capital activities of certain investee companies, including the IPO of ZhongAn Insurance. Fair value gains of certain investments in verticals such as healthcare, as well as subsidies and tax rebates. Share of profit of associates and joint venture was RMB 818 million for the quarter, compared to share of losses of RMB 619 million for the first quarter of 2016.
Some of our investee companies registered profits, including one-off gains for the third quarter of 2017 compared to losses for the third quarter of 2016. Income tax expense was approximately RMB 5 billion, up 103% year-on-year or 26% quarter-on-quarter. The increase was mainly due to greater profit before income tax and withholding tax. Effective tax rate for the quarter was 21.7%. Net profit attributable to shareholders was RMB 18 billion, up 69% year-on-year or down 1% quarter-on-quarter. I'll walk you through our Non-GAAP financial numbers. After adjustment to Non-GAAP, operating profit for the quarter was RMB 21.6 billion, up 44% year-on-year or 8% quarter-on-quarter. Operating margin was 33%, down four percentage points year-on-year and two percentage points quarter-on-quarter. Net profit to shareholders was RMB 17.1 billion, up 45% year-on-year or 4% quarter-on-quarter. Net margin was 26%, down three percentage points year-on-year and three percentage points quarter-on-quarter as well.
Let's turn to segment gross margin. Gross margin for value-added services was 59.9%, down 5.3 percentage points year-on-year and broadly stable quarter-on-quarter. The year-on-year decrease was mainly due to higher channel costs of smartphone games paid to third-party app stores, including handset manufacturers and iOS, and revenue mix change to lower margin products such as digital content services. Gross margin for online advertising was 36.3%, stable year-on-year, and down 1.5 percentage points quarter-on-quarter. The sequential change was mainly due to reduced inventory as we revamped our advertising system. Gross margin for others was 20.3%, up 2.2 percentage points year-on-year and down 2.1 percentage points sequentially. The year-on-year increase was mainly due to gross margin improvement of payment-related services as a result of larger base. The sequential decrease was because of mix shift in funding channels as some funding channels incurred higher handling fee rates. Moving on to operating expenses.
Selling and marketing expenses were RMB 4.8 billion, up 47% year-on-year or 31% quarter-on-quarter. The year-on-year increase mainly reflected greater spending on products and platforms such as online games and online media, as well as higher staff costs. The sequential increase was primarily driven by greater marketing spending on our mobile apps and seasonal promotional activities launched during summer holidays. As a percentage of revenue, selling and marketing expenses decreased to 7% for the third quarter of 2017 from 8% for the third quarter of 2016. Total G&A expenses were RMB 9.1 billion, up 54% year-on-year or 11% quarter-on-quarter. Under G&A, R&D expenses were RMB 4.8 billion, up 53% year-on-year or 14% quarter-on-quarter. The year-on-year increase mainly reflected higher staff costs. As a percentage of revenue, total G&A was 14% and R&D was 7%. At the end of the quarter, we had about 43,500 employees.
The quarter-on-quarter increase of 7% was mainly due to enrollment of over 1,500 graduates. Looking at the margin ratios for the third quarter, gross margin was 48.6%, down 5.4 percentage points year-on-year or 1.4 percentage points quarter-on-quarter, mainly due to decrease in VAS segment gross margin and increase in contribution from low margin other segments. Non-GAAP operating margin was 33.1%, down 4.1 percentage points year-on-year, primarily reflecting lower gross margin. Sequential decrease of 2.3 percentage points was mainly due to lower gross margin and higher selling and marketing expenses. Non-GAAP net margin was 26.3%, down 3.2 percentage points year-on-year, and 2.8 percentage points quarter-on-quarter. Year-on-year decrease was mainly due to lower operating margin, partially offset by the increase in share of profit of associates. Quarter-on-quarter decrease was mainly due to lower operating margins. For the third quarter, total CapEx was RMB 3.5 billion, down 4% year-on-year, or up 16% quarter-on-quarter.
Operating CapEx was RMB 2.3 billion, up 11% year-on-year, and down 2% quarter-on-quarter. It represented 3% of the total revenue. Non-operating CapEx was RMB 1.2 billion, down 24% year-on-year, and up 78% quarter-on-quarter. Free cash flow was RMB 27.5 billion, up 94% year-on-year, and 57% quarter-on-quarter. Year-on-year and quarter-on-quarter increases were mainly contributed by higher cash flow generated from online games and on advertising business. Our net cash position at quarter end was RMB 18.9 billion, or $2.8 billion, up 125% year-on-year, or down 11% quarter-on-quarter. The sequential decline was mainly due to payments for M&A initiatives and investment, as well as licensed content purchase, partly offset by free cash flow generation. Fair market value of our listed associates and available-for-sale financial assets was approximately $25.8 billion as at quarter end, compared to $21.5 billion as at last quarter end. Thank you. We shall open the floor for questions.
We will now begin the question-and-answer session. If you wish to ask 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 Wendy Huang from Macquarie. Please ask question.
Thank you for taking my question. First, congratulations on very strong game revenue growth. Given that you have launched the survival type of game recently as well, and also those game are gaining very strong traction, can you also comment on the impacts on recent regulations on this type of new games? Secondly, I think this year is a very fruitful year for Tencent because you started to spin off lots of your investees, such as the China Literature, Sogou as well as Sea. Can you maybe comment on your strategy on the investees in the longer term? Thank you.
Wendy, question, what was the game that you referred to?
The survival type of game.
Okay. I think survival game is definitely a very popular category and important category. We have been tracking it from the PC side already, and we have a constant dialogue with the original IP of the survival game producer, and have been trying to establish a relationship. At the same time, what we have seen is there have been mobile survival games that have been launched in China, and we have our own set of games which are in the pipeline. There will be a whole series of survival games. The most immediate ones are going to be one within our CrossFire mobile. There's going to be a survival mode. As James also mentioned in the prepared remarks, we have licensed a game called Glorious Mission, which is of a survival nature. Both of these games have actually achieved more than 20 million pre-registrations, each one of them.
That indicates there's a lot of players' enthusiasm toward this type of title. Now, over the long run, I think what we're seeing is just the beginning of this genre. We felt this genre in itself, it's more of a resemblance to the shooters genre. If you look at the shooter genre, the most dominant games have remained more or less the same for about 10 years. I think that points to why there's a lot of enthusiasm when you have a new interpretation of the genre that comes up, and we felt there's a long latent demand for some kind of innovation in the genre. What we felt is, over time, obviously, we would like to work with the original IP in this genre. At the same time, there will be adaptations and differentiated
Game plays coming out of this bigger survival concept. We're going to have a whole pipeline of games that will be targeting this broader genre. In terms of our investment strategy, I would say, Tencent actually pursue an open platform collaboration strategy. As a result, since 2010, we have continuously stepping up our effort in investing in different companies, which can have a synergistic operation with our own business. At the same time, because we have our traffic, we have our whole set of infrastructure services, we also have the mindset of helping these investee companies. Over the past few years, we have seen many of these investing companies benefited from the industry growth from their own effort, as well as from a collaboration with us. Some of these companies now have reached the stage that they can actually pursue an IPO.
We are very glad to see that. We felt, over time, there will be more and more of our investee companies which reach that kind of maturity that they can be IPO'd in the market. In addition to that, China Literature is a slightly different story. This is a company which is a spinoff. We do control a majority stake in the company. At the same time, if you look at its history, it is a company that has been formed outside of Tencent despite of our controlling stake. We have also made acquisitions and merger along the process. That's why it is a company that has a more specific situation that supports a case for IPO, a spinoff and an IPO.
I would say for the majority of our businesses which have been homegrown and organic, there's actually more reason for them to stay together, so that they can reinforce each other in a synergistic way. I don't think spinoff is going to be, especially of our 100% owned business, is going to be a norm for us going forward.
Thank you. The next question. Great. Thank you. Your next question comes from the line of John Choi from Daiwa. Please ask the question.
Good evening, thanks for taking my question, and congratulations on a great set of results. I have two questions here. Could you, first of all, elaborate on your recently launched content platform, unified into Penguin accounts, and how this basically will kind of fold into your content creation strategy that you guys just mentioned. Should we be expecting more or less a unified account in terms of ad infrastructure system going forward? Secondly, could management also give us some more details about the recent investment into Snapchat? That would be very helpful. Thank you.
In terms of the content creation platform, I think the starting point is that we do have quite a number of newsfeed products within our overall group. The first and the most foremost one is actually a public official account system within WeChat. In addition to that, we have a newsfeed product within QQ, which is called Kandian, which has seen significant growth. We have newsfeed products in our Tencent News, which is a leading news app, as well as our Kuaibao product, which is based on interest-based recommendation engine. We also have a browser, which has newsfeed as well. We have multiple newsfeed products. I would say, on one hand, the official account is actually quite a self-sufficient and unique platform in itself.
A lot of content providers who want to operate their own official account and has their own fan system, that would continue to stay. At the same time, there's a whole host of information sources that we have been using for different newsfeed products within our group, and we want to consolidate all of these into a common content platform, which is the Penguin content platform, so that we can maintain a one-stop shop user experience as well as interface and management system with the content providers. I think that's essentially the idea. Now, the ad system is a different story. As John has talked about, we have been also consolidating our advertising platform attached to different feeds products into a common social and performance ads platform. That has led to some disruption in terms of the ad business in some part of that newsfeed. Over time, we believe when we consolidate that advertising system, it will be much more efficient, it will be much more convenient for the advertisers to be using.
The second one is on Snap. I think if you look at Snap right now, we have actually invested in Snap in the very early days of its growth, right? I think there's a long history in terms of our engagement with the company, and along the years, we have always been very impressed with the progress and with the innovative nature of the company and the founders, and we have a very good relationship with them. As a result, right, we have been a long-term shareholder and recently, as we can see, there's an opportunity for us to acquire shares at a pretty attractive price in our mind.
When we look at Snap's business, we continue to feel that there's a lot of engagement with young users, there's a lot of innovativeness in the company's product, and there's a lot of potential for them to build its business further. That's why we have taken up more share and try to establish closer relationship, and over time, we try to see whether we can do something more strategic with them.
Thank you. The next question, please. Your next question comes from the line of Gregory Zhao from Barclays. Please ask your question.
Hi, gentlemen. Thanks for taking my question, and congratulations on a strong quarter. My first question is about AI. Recently, Tencent announced the AI in All strategy. Can you help us better understand how AI can help improve our existing business, specifically like gaming, advertising, and the social network? What other business you think AI can help potentially improve the efficiency? My second question is about our financial services. We saw our financial services, such as payment, wealth management, and insurance, all show very strong momentum in the domestic market. My question is about our expansion in the overseas market. Do we have any plan to compete with international players such as Visa, Mastercard, and PayPal to expand into the U.S. and European markets targeting those domestic users? If the answer is yes, what's our plan to acquire these local users? Thank you.
I think for AI in All, the concept is really a number of fold, right? Number 1 is we believe AI can actually help our various businesses. I think in the last quarter, we have actually sort of walked through the multiple examples in which AI can help. I think it can help, for example, our content business by providing a better recommendation to our users. It can help our advertising business because it can help on the targeting of the ads. It can help our financial business because it can help us to cater our offers to our users and at the same time analyze creditworthiness of our users in a better way. It's really sort of across the board, many of our products and services can actually benefit from AI.
At the same time, I think it's also a concept that we want to make our AI technology available to all of our partners and all of our industry customers through cloud services. Because we see AI as an enabling service that can help multiple industries to get more efficiency, to understand their users, understand their data better. That's why we would like to offer AI capability through our cloud business and to a lot of our own partners, customers, so that they would also enjoy the benefit of our AI investment as well as advancement. In terms of overseas business, I think for our payment business, the initial growth on the overseas front will be serving the Chinese users that are going increasingly abroad.
There are many, many Chinese users who are going on travel or going on business, and we felt by following their footsteps, we can actually establish a presence in the different countries and serve them better. In terms of globally, right, I think we much more pursue a partnership strategy. We felt each one of the market for financial businesses is actually quite heavily locally regulated, and there's a lot of expertise that local players have already built. It would be much rather instead of saying, "Oh, we are gonna go out and compete with them," it's much better if we can go out and cooperate with them and form partnerships so that we can leverage their expertise, we can bring in our own expertise as well as our flow from China and bring to a mutually beneficial outcome.
Thank you.
Next question.
Thank you.
next question, please. Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.
Hi, good evening. Firstly, about time spent of users. You have been sharing user trends with us for a long time. Could you also talk about the development of time spent of users across various applications of Tencent in the past year or two, especially given your investment in digital content? secondly, just a quick follow-up question on the inactive users on QQ and QZone. How much of the decrease was due to migration to Weixin? Thanks.
Well, in terms of time spent of users, I think that the short and quick answer is, it has been going up across the board, pretty much. I think, the key factor has been, I think people are using their handsets more. especially, when we look at, for example platform-like products such as Weixin, such as QQ, such as our browser. When you have a platform-oriented business which can provide more and more content as well as different types of services to the users, then there's a tendency for people to spend more time. I think, the official account system within Weixin is a very important example. I think, the other thing is really about as the content format turned into more video-oriented, people tend to spend more time on it.
The thirdly is as recommendations technology keeps on improving, there is a better chance that you can actually provide better content to the users, as a result, you can keep them longer. I think it's a number of these factors. Now, of course, within our games, there has been a very strong increase in terms of both the DAU as well as time spent on our various successful titles. In terms of the inactive users on QQ, I would say it's a combination of factors. There are people who have been relatively inactive, they have switched over to Weixin. A lot of them were spending time on both products. Certain users would gravitate toward a platform more. In this case, as people get a little bit older, they may be spending more time on Weixin.
Whereas what we have seen is, for QQ, the positioning among younger users have really been strengthened over time, there's more engagement with the young users.
Thank you. The next question, please.
Your next question comes from the line of Alex Yao from J.P. Morgan. Please ask your question.
Hi. Thank you, management, for taking my question. Congrats on a very solid quarter. First of all, I would like to follow up on the survivor shooter game. In some of game genres, both PC and mobile, it could form a winner-takes-all situation. For example, MOBA in both PC and mobile are winner takes all. Even the shooter game is pretty much a winner takes all. Do you think this mobile survivor shooter game genre will also become a winner-takes-all market structure in China? How do you think about the current competitive landscape, given some of the industry peers around your mobile shooter game in the past few days? The second question is about WeChat Moments array. Is the improvement more driven by technology, or is it driven by your efforts to penetrating to different demographic or geographic that doesn't have advertiser demanding ads? Thank you.
On your first question about whether the survival shooter games will be winner-take-all or not, I think, the short answer is it's too soon to say. Even for the traditional first-person shooter games on PC, you're right that in China, our CrossFire game has a very good market share. Our Ninjan game and our Call of Duty Online game also have decent market share. If you look outside China, Call of Duty, Battlefield, Grand Theft Auto to some extent, Titanfall, there's a whole range of successful first-person shooter games on the PC and console outside China. I think that if you look at the history of this survival shooter genre, it's actually a relatively long history that we've been following through Arma, through DayZ, through a number of predecessor games.
The most recent iteration is PlayerUnknown's Battlegrounds on PC, and that's very successful. There's also a game from one of our investee companies, Epic, called Fortnite Battle Royale that's proven popular on both PC and on consoles. I think with PC games, it's too soon to say. It may be that in the future, the traditional first-person shooter games incorporate these battle arena, battle royale activities as a mode of operation within the game. It may be that standalone games A triumphant, it may be that they both prosper at the same time. That's on the PC.
With mobile, I think that the industry is at a much earlier stage of development, partly because there isn't the same history of first-person shooter games on mobile for the survival shooter games to grow out of, and partly because it's harder to get the controls right, get the ability to look around or hear things behind you on mobile than it is on PC today. The short answer is it's too soon to say. The second question that you asked was with regard to the advertising? Moments, right?
Yes.
On Moments ads, well, there's a combination of both, right? There is improved technology in terms of targeting. We have also increased our presence within local markets, right? To allow smaller but more local advertisers to leverage our system to reach their smaller catchment of users. I would say it goes hand in hand because of the better targeting technology, you can actually allow smaller advertisers to target a smaller group of users and still deliver a good result. I think it goes both hand in hand, as you said.
Thank you. The next question, please.
Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
Hi. Thank you. Good evening, management. Congratulations on the strong set of results, and thanks for taking my call. I have two questions. First is related to follow up on the smartphone games. Just curious, do some of the newly launched games such as Contra and Kings of Chaos have a shorter deferred schedule? Just trying to reconcile the 84% growth in the smartphone games revenue this quarter. Is that due to a lot of the defer got released from the past quarter, together with some of the shorter defer cycle for these newly launched games? Then internally, in terms of the survival games what type of monetization are you guys are expecting?
Second question is related to in your press release, you noted that related to the cloud and AI, you will be looking for collaborations and investment opportunity in the technology area that could complement to your cloud service. Just can you elaborate a little bit because I thought Tencent already have very strong technology and won a lot of awards beating several world standard previously. Are you referring to specific industry knowhow or more collaborations with application software developers? In other words what are the areas that you hope to strengthen in your cloud and AI area? Thank you.
Regarding the drivers of smartphone game growth this quarter, of course, we have new games which have a shorter life cycle because they haven't got a track record and history to prolong the deferral. At the same time, most importantly, it's the Honor of Kings for this quarter there are more instant consumption items rather than deferral items. As a result, you can see that while the smartphone games grew by quite a lot, at the same time, the deferred revenue didn't grow a lot this quarter, only a few % quarter-over-quarter. On the survival game monetization, I think if you look at the successful PC products in the market, initially they monetized by selling the software upfront to the users and tens of millions of people globally, including in China, have paid to download those games.
More recently, they've begun layering in loot boxes. In looking forward, I think that a key element of the survival games is that they are intended to be relatively fair competitive experiences. I think it's reasonable to assume that the natural monetization will be more of a upfront or decorative nature rather than more of a pay for in-game advantage nature. That's something that we're quite accustomed to because that's largely true of the battle arena games as well.
On the cloud and AI, I think you have touched upon the right idea, right? I think in terms of core technology, we do have a lot of investment, and we felt we were quite strong. As we try to leverage these technologies to adapt them for the benefit of different industries, we actually require a lot of different partners. That's the kind of investment I think we are mostly referring to.
Thank you. The next question, please.
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi. Good evening, management. Thanks for taking my question, and congratulations on very solid quarter. My question is regarding the survival shooter game, Glorious Mission. Just wondering, given Tencent's very strong game R&D capability, why would you still license this game to another domestic studio? For the Mini Program in WeChat, wondering any consideration for monetization given the e-commerce category have already been the top vertical for that function as you just mentioned. Thank you.
As far as in a Glorious Mission being a licensed game, I think if you look at our history, what we really seek to serve the players with the content that's most appropriate to them and most attractive to them. Different players will have slightly different needs. If you take, again, looking back at the first-person shooter genre, out of which survival shooters have grown, we publish CrossFire, that serves a certain user need. We publish that serves a slightly different user need. We publish Call of Duty Online, that's a more sophisticated game involving more tactics and more aiming down the scope and so forth. You should assume that within this survival shooter genre, we have a number of titles in the pipeline.
Some of those will be licensed, some of those will be developed, but more importantly, different games will serve different audiences in different ways. Then, hopefully, in doing that, we can seek to please the aggregate player base as much as possible. Your second question was about Mini Programs and monetization of Mini Programs within e-commerce. I think that, as you probably know, there's a number of e-commerce companies that have embraced the Weixin ecosystem through official accounts, through Mini Programs, through viral marketing, and so forth. Some of those have grown extremely swiftly. That includes well-known incumbent companies such as JD.com. Also some emerging companies that have enjoyed dramatic growth rates, such as Pinduoduo. At this stage, our focus is really about facilitating those companies being able to reach out to users and facilitating users being able to find the products that are attractive to them.
Great. Thank you.
Thank you. Operator, may we have the last three questions?
Your next question comes from the line of Jin Yoon from Mizuho Securities. Please ask your question.
Hi. Good evening, guys. James, in your prepared remark, I think you said that newsfeed revenues were down year-over-year. If you could give us some color behind that, how much of that is just a 1-quarter impact versus a long-lasting into Q4 and perhaps the early part of next year? Second of all, with that potential revenues from newsfeed going away, have you seen that kind of revenues go into other aspects of performance-based? Thanks.
I think that what I said was that if you look at our media advertising revenue, we've seen very strong growth in video. Video was up over 70% year-on-year. We've seen weaker trends both year-on-year and quarter-on-quarter for the news category. Within that, one reason for the weaker year-on-year growth for news was that a year ago we had the Olympics. That always brings in substantial revenue and substantial associated cost. This year there's no Olympics. The second factor is that we had run some moderate amount of monetization within our newsfeed products including Kandian, including Kuaibao, including Tencent News. As Martin mentioned, in the last few months, we have really decided to focus our resources on getting the underlying infrastructure and user experience right.
One part of that focus is the Penguin accounts we talked about, whereby we encourage and nurture the creation of interesting content by small professional content generators. We find the most effective means to distribute that content to users through our various channels. In the course of focusing on the content side of the equation, we have chosen to de-emphasize temporarily the revenue generation side of the equation. On the revenue generation side, we're more looking at how to optimize the back end to create a scalable platform that can really build to something impressive and sustainable in the future. All of which means that, yes, our newsfeed advertising revenue has been adversely affected as a result. I don't think that we would necessarily see other categories of our advertising benefiting instead. I don't think we'd really see that substitution effect.
Got it. Do you expect that to linger into Q4 as well? Any significant revenue impact in Q4?
Yeah, that would linger into the fourth quarter. This is a multi-quarter initiative, and it's actually a number of initiatives. One initiative is really getting the content equation right so that there's proprietary or fresh content that appears on our platforms before it appears elsewhere. Another set of initiatives is around building out the core advertising platform. If you look back in the past, you may remember we went through a similar process with the advertising inside our social networks, where we actually took the Guangdiantong platform that we built for QQ and applied that progressively to Weixin official accounts, Weixin Moments, and elsewhere. That's where we are right now. We're in the process of building that advertising infrastructure back end. Again, looking back at the Guangdiantong experience, that was a multi-quarter construction, if you will.
Once the construction had reached a certain level of stability and maturity, then we were able to grow our revenue up much more sustainably than if we just rushed into it.
Thank you. The next question, please.
Your next question comes from the line of Chi Tsang from HSBC. Please ask your question.
Great. Good evening. Congratulations on a very nice set of results. I wanted to ask you about two things. Firstly, on e-finance, what sort of progress are you making in terms of consumer loans and also selling other financial services to your users? Secondly, as it relates to AI, there's been some sort of press announcements about you guys working on autonomous driving. Can you give us a sense of what sort of progress you're making? I know you're working on a number of AI projects. How does autonomous driving stack up in terms of priority? Thank you.
In terms of our fintech products, I would say the initiatives can be summarized into different categories. The first one is WeBank. I think WeBank has been operating quite well and the loan outstanding has been growing on a pretty nice trajectory. The second one is our online wealth management platform, Licaitong. I think we are seeing quite strong traction in Licaitong, and we have been able to offer both the more standardized money market products as well as other type of fixed income products to our users. I think both the number of users as well as the average ticket size, AUM per person has been growing nicely. In the recent months, we have launched WeSure, which is an online insurance gateway.
What it does have is an insurance distribution license, and what we intend to do is actually leverage that gateway to work with other insurance companies such as leading companies within the sector, as well as our invested company, for example, ZhongAn Insurance. Because they are the insurance companies, they can original products, and our gateway is actually a distribution platform so that we can actually help our partners to sell their insurance products better and customize their products better to our users. In terms of autonomous driving, I think it's very early days for us. We do have an overall initiative working with auto companies and with strategic partnership with them. We have maps, we have our in-car solution, which include all sorts of entertainment and speech recognition services that we can install within cars.
Autonomous driving, I would say as a starter, assisted driving will be a system that we'll be developing as an option for our automobile companies partners to choose from.
Thank you. Last question, please.
Last question comes from the line of Thomas Chong from Credit Suisse. Please ask a question.
Hi. Thanks management for taking my questions and congratulations on a strong set of results. I have two quick questions. The first one is about the ARPU for PC and mobile games. My second question is about cloud. Can management provide some color about the number of paying customers, if any? Thank you.
All right. In respect of the ARPUs for MMOG, it's from RMB 350-RMB 670, and for advanced casual games, it's RMB 110-RMB 500. For these platform games, it's between RMB 170 to RMB 80 for the quarter.
I'm sorry, your second question was about the number of paying customers for which product?
For cloud.
Oh, yeah. Unfortunately, we don't disclose that number at this point in time.
Got it.
Thank you. We are closing the call now. If you wish to check out our press release and other financial information, please visit the IR section of our company website. The replay of this webcast will also be available soon. Thank you and see you next quarter.
That does conclude our conference for today. Thank you for participating. Tencent Holdings Limited 2017 third quarter results announcement conference call. You may all disconnect now.