Earnings Call: Q1 2016

May 18, 2016

Thank you for standing by, and welcome to Tencent Holdings Limited 20 16 First Quarter Results Announcement Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. 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. Katherine Chen from Tencent. Please go ahead, Ms. Chen. Thank you, operator. Good evening. Welcome to our Q1 2016 results conference call. I'm Catherine Chen 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 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 as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of the risk factors and non GAAP measures, please refer to our disclosure documents on www.tencent.com/ir. 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. Tony will kick off with a short overview. Martin will review value added services. James will speak to online advertising and John discuss the financials before we take your questions. I'll turn the call over to Pong Mi Liu. Okay. Thank you, Katherine. Good evening, everyone. Thank you for joining us. During the Q1 of 2016, our mobile social communication platform, Weixin and QQ further different penetration in China and connect users to an expanding portfolio of online and offline services in our ecosystem. We further expanded our digital entertainment business especially smartphone games and strengthened the foundation of our online advertising business. Financially we delivered solid set of results for the Q1. Total revenue was RMB 32,000,000,000 up 43% year on year and 5% quarter on quarter. Non GAAP operating profit was RMB 13.5 1,000,000,000 up 43% year on year and 17% quarter on quarter. Non GAAP net profit to shareholders was RMB10 1,000,000,000 up 39% year on year and 12% quarter on quarter. And John will provide more details in the financial section. Moving on to online platforms. Total MAU for QQ was 877,000,000 up 5% year on year within which smart devices MAU was 658,000,000 up 9% year on year. Combined MAU of Weixin and WeChat increased 39% year on year to 762,000,000. For our social networks, Qzone smart devices MAU was 588,000,000 up 4% year on year. In PC games we maintained market leadership and continue to grow paying users via new content and items in key genres. In smartphone games we broadened our portfolio and claimed leadership in multiple new lines. We are planning several Gala Esports tournament during the year to deepening to different user engagement and activities. Our media platforms which include news and video delivered healthy growth in mobile usage. In particular our exclusive partnership with NBA enabled us significantly expand NBA viewership nationwide. In mobile utilities we exposed our mobile security capabilities to more third parties and widening our lead. Page views from our mobile browser increased significantly after we introduced news feed in homepage. And our app store Yingdong Bao gained incremental market share during the quarter. With that I pass to Martin to speak to business review. Thank you, Pony and good morning and good evening. In the Q1 of 2016 our total revenue grew 43% year on year. VAS represented 78% of the total revenue of which online games contributed 53% and social networks contributed 25%. Online advertising was 15% of total revenue. We moved cloud services revenue from social networks to others this quarter and the others segment represented about 7% of total revenue. Let's take a closer look at value added services. Segment revenue was RMB 25,000,000,000 in the 1st quarter up 34% year on year 8% quarter on quarter. Social Networks revenue was RMB 7,900,000,000 up 48% year on year and 11% quarter on quarter. Strong performance of monthly subscriptions as well as increased revenue from game related item sales drove segment revenue growth. Monthly subscriptions of membership, in particular music and video content grew, boosting total subscription accounts by 33% year on year to 108,000,000. Online games revenue was RMB17.1 billion up 28% year on year and 7% quarter on quarter. For PC games, user activities benefited from positive seasonality during the Chinese New Year. Monetization increased year on year and quarter on quarter as we further enhanced our operational capabilities. For smartphone games, new titles launched in the last 6 months drove both year on year and sequential revenue growth. In social networks for QQ we further enhanced community stickiness via product upgrades and new group functions. In Interest Tribe we launched a new timeline homepage that served a selection of content feeds based on users' interest graph. In group chats, we're increasingly using video to make group interactions more likely. We added peer to peer video messaging. We also enabled users to watch professional video together with each other. We also released new virtual gifts which are popular among young users. For Weixin, we launched the enterprise version of Weixin app to serve mobile communications need at work. The new enterprise Weixin app is also synergistic with existing enterprise accounts that are running in Weixin. We'll continuously enrich this new application to facilitate mobile office management thereby increasing efficiency for enterprise users. A point on Weixin payment, we began in March to collect a cash withdrawal fee of 0.1% of transaction value when users move money out to their bank accounts. The cash withdrawal fee has helped us to contain losses and in terms of user activities it has little impact on user activities. As a result our payment platform continued to grow healthily since the policy change. Now looking at games, on PC client games the combined average concurrent user accounts for advanced casual games was 7,900,000, down slightly by 4% year on year. But in the quarter, Crossfire, one of our biggest title hit a new record PCU at 6,000,000 even after the launch of its mobile version last December. Combined ACU for MMOGs was stable at 1,500,000. During the quarter we released expansion packs, new items and seasonal operating activities during the Chinese New Year, driving engagement as well as paying user growth. We are also increasingly leveraging eSports to generate excitement among gamers. During the quarter we kicked off a new tournament season for our lead titles in the mobile, shooter, sports and music genres. User metrics has indicated strong enthusiasm among players and audiences both in game as well as in offline arenas. For smartphone games revenue reached RMB8.2 billion up 86% year on year. Sequentially revenue grew 16% and this is mainly driven by strong performance of our MOBA, shooter and action games. We continue to dominate China's iOS top grossing chart with 6 out of the top 10 games. Within top 20 we operate 10 games with 3 serving a lifespan of more than 2 years. We believe our market position on Android is even stronger. We're currently enriching our IP catalog with in house and licensed titles from China and globally. In the Q1 we operated 84 games in total. New casual games include a 3 d running game as well as sport games such as Bridge and Go Chess. The success of Naruda Mobile also illustrates the power of combining a proven IP with Tencent's development as well as operational capabilities. In order to promote mobile esports, we're leveraging multiple Tencent properties such as QQ, Weixin Video and News App. In the final tournament of QQ game competition, nearly 2,000,000 players participate in the matches and over 30,000,000 users watch this event on their smartphones. Now I will invite James to talk about our online advertising business. Thank you, Martin. Our online advertising segment revenue was RMB4.7 billion, up 73% year on year and down 18% quarter on quarter. Mobile contributed 80% of our total ad revenue. Within which our brand advertising revenue was RMB2.2 billion, up 56 percent year on year and down 23% quarter on quarter. Year on year, the increased mobile impressions and ad price across our media platforms delivered above industry revenue growth rates. However, revenue declined sequentially due to weak seasonality in the Q1 and macro conditions. Our performance advertising revenue was RMB 2,500,000,000 up 90% year on year, but down 13% quarter on quarter. Since we began testing Weixin Moments advertisements 1 year ago, we have employed user feedback data to refine our targeting capabilities and deliver more relevant advertising to users. This in turn allowed us to release more inventory in mobile Qzone and Weixin Moments contributing to the rapid year on year growth. Sequentially, our performance advertising revenue declined primarily due to the weak season for e commerce in the Q1. Looking more deeply at our media and social advertising inventories, in news mobile traffic grew as we adopted enhanced targeting based on users' interest. In the Q1, 80% of our news advertising revenue was from mobile. In video, we saw rapid growth in both user visits and mobile video views due to an expanded catalog and enhanced curation capabilities. Benefiting from our exclusive partnership, NBA games attracted a large number of fans to our platform, driving up unique viewers significantly. The NBA fan base is particularly big budget advertisers such as automobile and food and beverage companies. In social, we're gradually building the business to scale. For Qzone, we've expanded to better serve brand advertisers by our campaign solutions that facilitate brand storytelling. For Weixin official accounts, we're testing product listing ads that deep link directly into advertisers app product pages. The initial feedback from e commerce advertisers indicates they see a lift in ad conversion as a result. And for Weixin Moments, we're bringing long tail advertisers on board by using traffic generated from Tier 3 and 4 cities with lowered the minimum ad budget and educate them to use our self-service bidding platform. We constantly monitor user feedback and balance inventory growth with our performance. And I'll now invite John to walk through the financials. Hello, everyone. For the Q1 of 2016, our total revenue was RMB 32,000,000,000 up forty 3% year on year or 5% quarter on quarter. Gross profit was RMB 18,600,000,000 up 38% year on year or 5% quarter on quarter. Share of losses of associates and joint venture was RMB1.1 billion during the quarter. On a non GAAP basis, share of losses of associates and joint venture was approximately RMB340 1,000,000. Income tax expenses were RMB2.6 billion, up 50% year on year or 28% quarter on quarter. Effective tax rate for the quarter was 21.6%. Net profit attributable to shareholders was RMB 9,200,000,000, up 33% year on year or 28% quarter on quarter. After adjustment to non GAAP, operating profit for the quarter was RMB 17,500,000,000, up 43% year on year or 17% quarter on quarter. Net profit attributable to shareholders was RMB 10,000,000,000, up 39% year on year or 12% quarter on quarter. Operating margin was 42%, stable year on year and up 4 percentage points quarter on quarter. Net margin was 32%, down 1 percentage point year on year or up 2 percentage points quarter on quarter. Let's turn to segment gross margin for the quarter. Gross margin for VaaS was 66%, broadly stable year on year or up 2 percentage points quarter on quarter. Sequential increase reflected the increase in revenue proportion of self developed products including smartphone games. Gross margin for online advertising was 44%, up 5 percentage points year on year or down 7 percentage points quarter on quarter. This sequential dip was mainly due to weaker seasonality. Moving on to operating expenses, selling and marketing expense was RMB 2,000,000,000 up 53% year on year or down 33% quarter on quarter. The year on year increase primarily reflected higher marketing spending on products and platforms such as payment services and online media as well as greater staff costs. The sequential decline mainly reflected a seasonal reduction in advertising and promotional activities. G and A expense was RMB4.4 billion, up 19% year on year or down 8% quarter on quarter of which R and D expense was RMB2.3 billion, up 15% year on year or down 6% quarter on quarter. The year on year increase was due to greater R and D expense and staff course, whereas the sequential decline was mainly driven by lower R and D expense, consultancy fees and staff force. As a percentage of quarterly revenue, selling and marketing expense was 6% and G and A was 14%. D represented 7% of quarterly revenue, share based compensation was approximately 2%. We had approximately 31,000 employees as at quarter end. Looking at margin ratios for the Q1, gross margin was 58.1%. It was down 1.9 percentage points year on year and broadly stable quarter on quarter. The year on year decrease was mainly due to the increase in proportion of other segment revenue with lower margins. Non GAAP operating margin was 42.1% flat year on year or up 4.2 percentage points quarter on quarter. The sequential increase was mainly due to lower selling and marketing expense and general and administrative expense as a proportion of total revenues. Non GAAP net margin was 31.7 percent. It was down 0.9 percentage points year on year and up 2.1 percentage points quarter on quarter. The year on year decline was mainly due to the increase in the share of the losses of associates and joint venture. The sequential increase was due to higher operating margin partially offset by increased income tax expansions. For the Q1, total CapEx was RMB4.1 billion, up 2 0 8% year on year or 118% quarter on quarter. Operating CapEx was RMB1.3 billion, up 105% year on year and 4% quarter on quarter. As a percentage of revenue, it was consistent with last quarter at 4%. Non operating CapEx was RMB 2,800,000,000 up 308% year on year or 3 71 percent quarter on quarter. The significant year on year and sequential increase was mainly due to addition of land use rights in Guangzhou. Free cash flow was RMB13.9 billion up 67% year on year or down 14% quarter on quarter. The year on year increase reflected to higher operating cash flow whereas the sequential decline was reflected to lower operating cash flow as we pay yen bonuses in the Q1 and higher capital expenditure as we had more CIP and then you strike out late during the quarter. Our net cash position as of quarter end was RMB 27,400,000,000 up 8% year on year or 44% quarter on quarter. This sequential increase in net cash was primarily driven by free cash flow generation, partially offset by payments for M and A initiatives and license contacts. Fair market value of our listed associates and available for sale financial assets was approximately RMB82 1,000,000,000 as at quarter end. This concludes our presentation. Thank you. Thank you, John. Operator, shall we take the first question please? And we would like to invite one question from each analyst at a time. Thank you. We will now begin the question and answer session. Our first question comes from the line of Dick Wei from Credit Suisse. Please ask your question. Hi, good evening. Thanks for taking my questions. My question is on Tencent's plan on some new initiatives. For example, number 1 is on personalized news. I think some of the other vertical sites, news site has more personalization on the news. I wonder any plans about for Tencent particularly beyond our Tencent, any plans for change in terms of the WeChat Moments kind of the ways we present the news or the news feed rather than purely time based would be more interest based? And so personalized news is one area. Another second area may be the live video market. I think have drawn some a lot of the attention these days. I wonder how does management see about opportunities as well as the plans for that going forward for us? Thank you. Yes. In terms of personalized news, we feel that sort of it's definitely sort of a trend that consumers actually clearly want and at the same time sort of from a technology perspective especially on mobile, right, it's actually easier to identify the person and then sort of provide personalized news. We believe sort of when people read news, there is a part of people's needs which actually wants to read the hottest news. There's another part which sort of there's an interest element and hence that requires a personalization. And as a result, if you look at the range of initiatives that we're doing to cater to these two needs, obviously Tencent News is one that sort of present the most authoritative and the hottest news to the users. But on the sort of personalized front, I think there are a number of venues we can do it. One is actually as you said, Tantan Kuai Ba which is our everyday NIO express app which we have launched which sort of primarily presents news as well as additional information, news related information to the users through a personalized timeline mechanism. In addition to that, even within Tencent News, right, we're actually trying to incorporate some elements of personalization to the consumers. So that in addition to the most authoritative news that everybody sees and our users can also see some personalized authoritative news for them. And thirdly, within the official account in Weixin, you can consider it as another way of personalization, but this is a personalization in which consumers clearly tells us what account they want to follow and then sort of people see these news push to them. Now on Moments, I think we already capture some of the personalization through social sharing. I think that's already sort of quite enough. We do not want to turn the moment into sort of primarily a news reading vehicle. So that's why I think we're not going to do much of that within moments, but rather sort of focus on pushing on our Tian Tian Kuibao as well as personalization within Tencent News and continued pushing of our official accounts. Now in terms of live video, right, we consider live video from 2 elements. So one is live video is actually a media format. It's a capability that a lot of our media properties would actually sort of need to incorporate. So that's why within a number of different of our properties, video platform, even sort of within our music platform potentially, we could support live video functionality. On the other hand, we saw and then certainly in a number of our investee companies, for example Douyu, they are actually sort of a live video platform which focuses focus on game related live video streaming. So that's also sort of a capability that's sort of tied in with that kind of business model. Now the other aspect of Live Video is a way for people to perform and then that's a business model and it looks like sort of it's actually generating quite a bit of revenue from 4 different platforms. On that one we felt there's sort of less of a network effect that's it's essentially a group of content that's curated for users, right, to pay for. And there's over time we think sort of there's less network even there's less stickiness and that's a revenue stream that I don't think will chase with a lot of focus. Got it. Thanks Martin. Thank you. Our next question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead. Hi, good evening. Thank you for taking my question. I wonder if you could elaborate a bit more on the macro impact on your advertising basis. Could you update us on some of your top advertiser industries and any strength and weakness that you have observed in them, which would which you came up with this conclusion of some macro impact? Thank you. Well Eddie, I think so, it's really a general feeling that we see and there's sort of some weakness in terms of the propensity spend within amongst sort of the top advertisers and a little bit sort of across the board and particularly stronger with sectors which require bigger ticket item sell. So I think that's sort of a general sense. In the past for example it takes 2 meetings to sort of nail down a certain amount of contract. Now it takes longer time and the average contract size sort of is typically smaller and sort of new advertisers are keeping more of the budget later of the year until they see sort of clear picture around the macro economics. So these are sort of the general feeling that we're getting from the frontline sales people. Martin can I have a follow-up question? Just broadly speaking, do you feel the impact is more on the brand advertising side or on the performance advertising side? Thanks. I think for us, if you look at our current business portfolio, it's sort of more we feel it more on the branded side. I think sort of on the performance side, we are still in the process of ramping our business. That's one factor. The other one is generally I think sort of the small to medium enterprises are sort of less the smaller ticket items are less affected by this. Very helpful. Thanks. Thank you. Next question please. Thank you. Our next question comes from the line of Chi Seng from HSBC. Please go ahead. Hi, good evening. Thank you so much for taking my questions. I wanted to ask you a little bit about Weixin Moments. In particular, I was wondering if you can discuss sort of what your ad load is currently and how that might progress over the next sort of year or 2. And then secondly, I also wanted to ask you about enterprise patient and how that business model might evolve over the next few years? Thank you so much. Yes, for Weixin Moments, I think the ad load sort of would gradually increase, but I want to stress the point of gradually and alongside with this gradual increase, there's a lot of work for us to do in order to accompany that, to make sure that the overall user experience are not impacted negatively. And a lot of it is related to improving our targeted ad platform capability so that we can actually target our advertising to consumers with that kind of need. We need to sign up a range of high quality advertisers and also sort of couple that with a lot of customer education, so that the quality of the advertising is actually high. We need to sort of train up a lot of intermediaries so that they can act as our helper in enforcing healthy ecosystem around advertisers. And there's a lot of work that we need to do with respect to ad format, so that the ad formats are naturally embedded into the user experience. So that it's effective on one hand, but sort of doesn't affect the user experience on the other hand. We need to sort of put in a lot of effort in creating our self serving, developing our self serving ad buying system, so that it can actually help more advertisers come in. So there's a lot of fundamental work to be done and releasing more inventory is actually the easy part, but what we need to do is actually making sure that or the other capabilities are increased, so that when we release inventories, it's actually conducive to user experience rather than sort of impact negative user experience. In terms of enterprise Wei Shen, I think it's too early to top our business model right. Right now what we focus on is actually launching a product, understanding what the enterprise users' needs are and trying to keep improving our products so that we can serve the enterprise users' needs. So that's at the moment our focus. Okay. Thank you. Operator, next question please. Thank you. Our next question comes from the line of Wendy Huang from Macquarie. Please go ahead. Thank you. On the advertising front, you also quoted the weak seasonality in the e commerce as a reason for the advertising revenue sequential decline. I just wonder what's your advertising revenue contribution from JD? Was it very significant to your advertising revenue? And also you mentioned that you already wrote out the self bidding system in the lower tier cities for the Weixin moment. Just want to clarify the in the longer term, so Weixin Moments ads platform, should it be more for the brand ads or the SME advertisements? Lastly, I want to clarify on the 260,000,000 other revenues that you reported this quarter. Is it enterprise Weixin related or is it cloud related or is payment related? Thank you. Okay, well in the e commerce comment, it's more sort of related to quarter on quarter comparison, right, because sort of near the Q4 of every year usually it's a big season for e commerce industry. So it's more of that reference. Now in terms of JD, I would say it's a meaningful contribution, but it's not sort of overly no overly sort of heavy proportion of our performance in ads. Now in terms of the 2nd tier third tier and forty tier cities and we have launched that functionality as a testing. So far I think the testing result is actually encouraging. We're cautious in doing this because we want to make sure that we continue to enforce the quality of the advertisers. And over time we will see this platform to be sort of both serving the needs for branding as well as serving the needs for small and medium enterprises in terms of targeting their users. The more targeting capability that we add, the more sort of new ad format that we can actually make it consistent with the user experience than sort of it has more scalability both from the branded sort of perspective as well as from a performance perspective. Now in terms of others revenue, I would say the biggest chunk is actually related to payment and in that regards one of them is actually related to the revenue that we receive from merchants, 3rd party merchants when we actually sort of serve as their payment gateway and then sort of new users use Weixin payment in the merchants consumption pathway. And second is slight revenue from essentially 1 month revenue from cash withdrawal fee from the consumers. And then the other big portion is really cloud service. Thank you very much. Next question please. Thank you. Our next question comes from the line of Erika Perkin Worten from UBS. Please go ahead. Hi, thank you. We know that you've launched a number of the mid high core mobile games titles across different genres. Just wondering if you can share, are there any particular genres that Tencent has found a stronger niche and where you're likely to spend more focus on? Thank you. I think when we look at the mobile game industry in general, there's about a dozen genres, which are either large and well established today or we see as becoming very substantial in the next couple of years based on global trends and based on PC gaming behavior in China. And several of these big genres are genres that are already popular on PC in China. We see some convergence of gameplay mechanics, game and behavior between PC and mobile as the mobile gamer audience becomes more sophisticated. I think that if you look at those big genres, there's some such as turn based role playing games where other companies are obviously very successful. We'll seek to build market share incrementally. But then there's other categories such as shooting games, fast arena games, running games, board and card games, where not only are we very successful, but you could also argue that we have sort of created those game genres in China or at least made those game genres 5 times bigger than they would otherwise be if we hadn't released the flagship games in those genres. Thanks, James. Thank you. Operator, next question. Sure. Our next question comes from the line of Thomas Chong from Citigroup. Please go ahead. Hi. Thanks for taking my questions. I have two questions. The first question is about the ARPU for MMO, advanced casual and smartphone games, if management can provide some more color? And my second question is about online video. Can management comments about the online video, how competitive landscape for this year compared to last year? Thanks. For the ARPU for LMOJ, it's within RMB 310 to RMB 450 per quarter and for advanced casual games RMB 85 to RMB 330 and for smartphone games, we will have the portfolio between RMB150 to RMB160 per quarter. I think for the online video competitive landscape, the short answer is it would be extremely competitive and slightly more competitive this year than last year due to some of the emergence and acquisitions that have taken place in the emergence of newer companies like Note TV in the space. To get a little bit more granular, in general those companies that bid a recipe for top content during 20 15 such as IT and our content and video platform gained substantial user and revenue share with which I think in turn is inducing everyone to bid aggressively for top tier content moving into 2016. Some of the areas where the bidding would be more intense would include drama serials, particularly drama serials that attract 15 to 30 year old female audience and also content that has the ability to drive subscription as well as advertising revenue would be areas where the competitive intensity is especially heightened. Thanks. Next question operator please. Thank you. Next question comes from the line of Natalie Wu from CICC. Please go ahead. Hi, good evening, management. Thanks for taking my question. I have a question regarding your advertising business. It seems to be a little bit lower in terms of sequential growth. So just wondering is there any deferred revenue associated with that? And could management give us some color on the contribution of e commerce advertisers' contribution on the performance based ad in the Q1? So in terms of the second question, e commerce would be the largest advertising category for our performance advertising business. So it would be a healthy double digit chunk, but a minority of the total. In terms of the quarter on quarter trends, we've called some of them out. First of all, there's the usual negative seasonality the brand advertising business, which I think in some previous years, we've sort of grown straight through that because the emergence of new platforms like online video, whereas this year we had a more sort of industry normal impact from negative seasonality in Q1 on the brand advertising side. Then secondly, on the performance advertising side, every year the Q4 is a peak season for e commerce activity. But this year or Q4 2015, there was the 'twelve-'twelve event as well as the 'eleven-'eleven event and more e commerce companies participated more aggressively than in previous years. So to some extent, the hangover from Q4 to Q1 was more pronounced this year than previous years. And then thirdly, this year, during the again for performance advertising, during the Chinese New Year, we had a number of advertisers who bought combined packages of advertising together with red envelopes. And the accounting for those had the effect of moderately reducing our performance advertising revenue. But in general, I would say that without sort of over focusing on the whys and wherefores of Q4 to Q1 trends, our advertising business is becoming quite large by China Internet Industry Standards. And so while we still believe that it will grow faster over time and while we still aspire to outgrow the industry over time, the percentage growth rates may slow down for some of our advertising products such as our online video business. So to be more specific, I think there needs to be some kind of reset in terms of the year on year growth rates that people expect for our advertising business. I would say sort of last year was a breakout year in the sense that our mobile video business actually grew a lot. It was the 1st year in which we monetized our mobile news app in a significant way. And it's also sort of the year in which we really flex our muscle around performance ads as well as the launching of the Moments ad in the Q2 of last year. So it's a congruence of a lot of factors which drove sort of very fast year on year growth. Now as we look into the future, the branded ads is already sort of approaching a pretty large size which means that it will be more closer to the industry growth and of course we strive to work to exceed that. And in terms of performance ads, we look at it as a long term business. So we will be deliberately building it over the longer run which means that there will not be sort of a very fast release of inventories. We want to make sure that everything is actually done right alongside with the gradual release of inventories. Great, very helpful. Actually could I have a very quick up if I may. I heard that Qzone actually lifted the ad load a quarter ago. So should we be expecting a similar level improvement of advertising revenue related with Qzone? And will there be a similar plan on Wish Moment as well this year? As we said, we'll gradually release more inventories, right. But sort of if we're not doing well in terms of the 5 different initiatives that we're doing in terms of ad technology and sort of new, advertising education and things like that, Then sort of any release of inventory will have a marginally lower return in terms of the additional revenue, right. So and then sort of it will have bigger negative impact on the users. So that's why we need to make sure that we continue to push forward on our own capabilities and that should precede the release of inventories or that should be done alongside with the release of inventories. Thank you. Operator, next question please. And in the interest of time, we shall take the last three questions please. Thank you. Next question comes from the line of John Choi from Daiwa. Please go ahead. Hi, thanks for taking my question. My question is on the mobile games right now. It seems that you guys have been pretty aggressively pushing the e sports culture. So if the management could give more color how this is impacting the ARPU, the game less in the lifecycle and how that's impacting the monetization rate? And secondly, I just want to quickly have more detail on your subscription. So $108,000,000 any more details apart from music and online video? Thank you. So, esports events around games, you asked whether it should impact ARPU or monetization rate or game longevity. I would say that we see it primarily affecting game longevity and user retention. There may or may not be ARPU or monetization benefits over time. With League of Legends, normally when a team wins the global championships and then players like to buy similar skins to what the winning team has used. But that's a sort of happy byproduct. It's not the primary reason for us to be in the esports business. The primary reason is that we see a huge pent up user interest in esports, both competing, but also watching other people compete. And we believe that by tapping into this cultural phenomenon, A, we can increase our mindshare with game players, but B, we can also deepen the engagement with the games and extend the longevity of the games. So that's really the rationale the core reason for being involved in eSports. Along with the fact that we're a gaming company and games are fun and eSports it can be very fun. Your question around the subscriptions, sorry, I didn't catch it. You asked about X million subscriptions and the growth in music and video? Yes, I'm just wondering you guys disclosed 108,000,000. So any trend on the ARPUs, particularly on music and online video, that will be helpful. Thank you. Yes. So in general, if you look at our privilege subscriptions, which represents the majority of our subscriptions such as QQ membership and VIP, And the blended ARPU is drifting higher over time because there's an increasing propensity to take the RMB 20 super VIP package rather than the RMB 10 VIP package. But our focus is more on adding more value to the packages and maximizing the number of privileged subscribers. The ARPU increase is again a happy byproduct. If you look at the digital content subscriptions, then for video, the price point has been RMB 20 a month since we launched, which at the time was a premium to the industry, but now the industry has converged around RMB 20 per month as well. For music, the initial price point was RMB 10, but now there's an increasing number of people taking RMB 12 or RMB 15 packages that enable them to download several 100 songs onto their phone as opposed to just screaming. So there's also a gradual upward drift in our field on the music product. But the bigger focus for us is really on persuading more consumers to subscribe and then the amount they pay can follow naturally over time. Okay. Thank you. Next question please. Thank you. Our next question comes from the line of Vivien Ho from JPMorgan. Please go ahead. Hi, thank you for taking my question. My question is still around your pay for performance adds. Apart from the seasonality in Q1, we saw that probably for JD, the 2nd quarter guidance is still soft, relatively soft. Just wondering how should we expect the P4P revenue to trend in Q2? Also on the new in feed autoplay video ads to be launched on Moments, can we get an update as well? Thank you. Yes, in terms of pay for performance, as I said, JD has an important partner actually contributes their ecosystem, right, contributes a meaningful portion of our total performance ads, but sort of it's not overly heavyweight, right. So that should be put into perspective. Now I think as a result, we talked about our performance ads business as a long term business. So that's why I would like people to sort of reset some of the expectations, overly high expectations for us to step on the pedal and keep on releasing inventories. I think sort of we would like to sort of do it on a gradual basis, sort of this is the 3rd time I talk about it. So I think that will be a much more important driving factor when you look at our performance adds in the next few quarters. What was the next question? About the in feed autoplay video ads. I think that one is still being tested right now. It's not sort of fully operational. So we will see how it performed and then we may report once it's really sort of live. Do we have a timeline? It will be released when it's ready. Okay, thank you. Operator, take your last question please. Certainly. Our last question comes from the line of Richard Kramer from Arete Research. Please go ahead. Thank you very much. I'm just wondering two things briefly. One is, can you update us on some data on the user base, attach rates, TPV, etcetera of Weixin Pay? Will the 0.1% withdrawal fee from March grow to be something that's material to $0.10 revenues by the end of 'sixteen? And I guess the other thing that seems to be a question among some investors with the recent capital raising, can you talk through your acquisition strategy and the need for raising another $3,000,000,000 to $4,000,000,000 of capital? What and in what areas do you think we should expect Tencent to look to deploy this capital with the cash flow generation you're seeing right now? What prompted this move given that obviously the business is profitable and quite cash generative? Thanks very much. Yes, in terms of payment business, I think the general direction as we have provided is that the platform continues to grow healthily and in terms of the total number of transactions, in terms of number of users, active users, so it's growing healthily. I think sort of in terms of the revenue, right, the revenue from both the merchants as well as the revenue from the consumers, right. I think a lot of this revenue is actually for us to recoup the cost that's associated with our payment platform and on the consumers because we actually pay for whatever money that comes into our system. So as a result when the money actually leaves our system, we actually sort of try to recoup that expense. So I think overall we look at payment as a business that sort of may generate more revenue, but we continue to invest in it and the charging mechanism is actually for us to make sure that we don't sort of keep on increasing the subsidizing that platform. So for now, I think the more important thing for us is actually sort of continue to grow the platform rather than sort of making a lot of profit from it. Now in terms of acquisition, the capital raise if you think about this right, our revenue and profit is actually cash flow is actually generated onshore. So we actually need to have cash offshore in order to pursue investments and acquisitions because sort of most of the companies even sort of if these are Chinese companies, they have overseas holding structure which requires U. S. Dollar investment. For example, if you look at Didi's recent financing we actually sort of put in US dollars. If you look at Meituan for example, we put in a $1,000,000,000 that's US dollars. So that's the reason why we actually need to raise cash outside of China in order to fund these investments. Overall I would say our investment strategy is that we continue to look at strategic alignment with us. We continue to look at the business momentum and positioning of the business that we invest in. We continue to look at the management quality and as a whole, right, we use our investment strategy to enhance the overall ecosystem so that one, we benefit from the growth of Internet into multiple vertical sectors within the economy and 2, we try to sort of create synergies between these companies and our own platform so that we derive value from their growth. Ms. Chen, please begin your closing remarks. Yes. Thank you, operator. We're now running the call now. If you wish to check out our press release and other financial information, please visit our corporate website at www.tencent.com/ir. We'll post a replay of this webcast on the site shortly. Thank you and see you next quarter. That does conclude our conference for today. Thank you for You may all disconnect now.