Earnings Call: Q4 2015

Mar 17, 2016

Thank you for standing by, and welcome to the Tencent Holdings Limited 2015 4th Quarter and Annual 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 turn the conference over to your host today, Ms. Catherine Chen from Tantan. Please go ahead, Ms. Chen. Thank you very much, operator. Good evening. Welcome to our annual results conference call for the year of 2015. I'm Kathleen Chen from the IR team of Tencent. Before we start the presentation, we would like to remind you that in this forward looking statement, 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 discussion also contains some unaudited non GAAP financial measures that should be considered in addition to the non GAAP assumptions of the company's financial performance prepared in accordance with IFRS. A detailed discussion of the risk factors and non GAAP measures, please refer to our disclosure documents on www.tencent.com/ir. Now let me introduce the management team on the call tonight. We have our Chairman and CEO, Pauli Ma President, Martin Lau Chief Strategy Officer, James Mitchell and Chief Financial Officer, John Lo. Pauli will kick off with a short overview, Martin will discuss strategic highlights, Jane will speak to business review and John will go through his analysis before we take your questions. I'll now turn the call over to Charlie. Okay. Thank you, Katherine. Good evening, everyone. Thank you for joining us. Since 2015, we've made good progress in executing our connection strategy, which positioned us to capture market opportunities brought by mobile Internet. I shall walk through 4 strategic areas that are shaping Tencent's businesses over the long run. In social, Weixin rapidly grew users and connected to a wider portfolio of online and offline services. QQ maintained year on year user growth, particularly among the used segments. Both products serve as a strong distribution platform for our games and digital content offerings. Both generate massive volume of traffic to feed our social advertising business, which doubled its revenues year on year. In games, we sustained rapid revenue growth for smartphone games. We maintain leadership in key PC game designs. We are also developing e sports tournaments, which help to build fan communities and reinforce gamers' loyalty. In media and content, digital consumption via smartphones, especially of news, sports and video content, strengthening the traffic leadership of our platforms. We began to monetize our mobile news service via in feed ads and we are building our subscription businesses for premium content served on our leading video, literature and music platforms. Looking at our broader ecosystem, we further developed our partner network via official account system and grew our mobile payment monthly active users 7 times year on year. For our Internet Financial Business, we worked with select partners to broaden our wealth management products portfolio on Li Taichung and introduced micro loans through WeBank. Financially, we delivered a strong set of results for the Q4 and full year of 2015. Let me highlight a few numbers for you. For the Q4 of 2015, total revenue was RMB30.4 billion, up forty 5% year on year and 14% quarter on quarter. Non GAAP operating profit was RMB11.5 billion, up 43% year on year and 10% quarter on quarter. Non GAAP net profit to shareholders was RMB9.0 billion, up 28% year on year and 8% quarter on quarter. For the full year of 2015, total revenue was RMB103 1,000,000,000, up 30% year on year. Non GAAP operating profit was RMB42 1,000,000,000, up 37% year on year. Non GAAP net profit to shareholders were RMB32 1,000,000,000, up 31% year on year. Operationally, our key platforms retain sector leadership. Total MAU for QQ increased 5% year on year to 853,000,000, within which smart devices MAU was 642,000,000, up 11% year on year. Weixin and WeChat reached combined MAU of RMB697 1,000,000, up 39% year on year. For Qzone, smart devices MAU rose 6% year on year to RMB573,000,000. We maintained our leadership as the largest operator and publishing platform for PC client games and established clear leadership in several genres of smartphone games. Our media business continued to grow, supported by increasing traffic from our user base, deep user insight and our expanding catalog of exclusively licensed and in house content. Our new services continue to lead by daily active users and video platforms by mobile video views. In mobile utilities, we expanded market leadership in mobile security, mobile browser and Android based app store in China. I'll now invite Martin to discuss strategic highlights. Thank you, Pauline. Good evening and good morning. Our connection strategy has really extended Weixin and Mobile QQ from being social communication tools to becoming platforms for games publishing, social advertising, premium content distribution and provisioning of other online services. I'll discuss in my section our strategies to build out each one of these businesses. In games publishing, we're leveraging our PC game expertise and mobile traffic to deliver high performing mobile games across different genres. In shooter and mobile genres, we extended our leadership from PC to mobile with new releases, including Crossfire Mobile and Wiimobile. In RPG, we achieved initial success with the Legend of MiR 2 as developed by our partner developer. We are able to attract new gamers to our mobile platform and we observed limited average impact on users and revenue due to cannibalization on our PC similar titles. We have fostering partnerships with game developers globally to bring best in class mobile games to our users. Game developers typically prefer to work with us because we can leverage a large user base and social graph to distribute games to a broad audience and run user targeted marketing campaigns. Many leading PC game developers view Tencent as the part of choice for publishing their mixed mobile title in China. These partnerships will enrich our existing pipeline, which include games we developed based on popular game titles as well as comic IPs. Running a well diversified portfolio of game titles is important in our view because the life cycles of mobile games tend to be shorter than PC games. As it relates to social advertising opportunities, during 2015, we made progress in building our social advertising business, which is becoming a mainstream sizable market opportunity globally. Compared with traditional online advertising, social advertising is less intrusive and if done properly can trigger viral sharing in our social platforms. We're growing this business in 4 ways. Firstly, we're developing advanced data mining, look alike and retargeting technologies that support enhanced audience profiling and targeting capabilities to drive ad engagement and conversion. Secondly, to attract the biggest share of top advertisers online ad spend, we're creating new ad formats that support brand storytelling. We've also formed dedicated sales teams serve key accounts with customized solutions. Thirdly, to serve a growing base of long tail advertisers, we're developing new audience targeting solutions for specific industries and increasing the types of ads sold through our self-service platform. Last but not least, we're gradually releasing inventories while balancing user experience with ad load performance. We view social advertising as a long term opportunity and we'll build it with patients to make sure that we get things right. Moving on to digital content services, the increasing user demand for quality content and on demand content access as well as improving copyright protection in the digital environment are creating a market for paid premium content in China. As private activities diminish, content suppliers are making new content available online sooner. App stores and standalone apps offer better mechanism for copyright protection as opposed to the previous web page architecture. We're also cultivating this market environment via paid services for premium content served on our video, music and literature platforms. While all of these businesses are still in investment mode financially for us, we believe premium content, paid services will help us cope with the increasing content costs over the longer run. For premium movies and video programs, we charge either a monthly subscription or a pay per view fee. During 2015, we made heavy investments that expanded our library of exclusive premium videos, which led to a 6 fold increase in our video subscriptions year on year. In music, we're in the early stage of moving the industry toward a free basic plus subscription premium model. We're the leading master licensor of music copyrights in China in terms of number of songs. In the second half of twenty fifteen, we started sub licensing the content to key online music providers to support an industry wide transition towards paid package. For online literature, we're currently the largest digital publisher by user and by revenue and will publish over 80% of the most popular online literature in China. We are also cultivating the commercial value of our vast IP library through participating in game, drama, movie and animation productions. I'm going to round up my section with an update on our Internet plus strategy, Connecting more digital content and broader types of offline to online services is helping our social apps to make users' life more convenient. Users are gaining broader access to e commerce and O2O services as we support our strategic partners to grow their product offering and service level. We're making local public services such as healthcare, transportation, utilities and municipal government services more accessible to users. We're also adding functionalities that facilitates online bookings, purchases, order tracking and other transactional services through official accounts and our mobile payment solutions. We believe creating a vibrant ecosystem will help us drive payment adoption and transaction volume. This in turn will position our payment platform as a launchpad for online financial transactions such as wealth management and consumer lending over the longer run. So with that, I'll pass to James to talk about business review. Thank you, Martin. In the 4th quarter of 2015, our revenue grew 45% year on year. Value added services represented 76% of our revenue, within which online games contributed 53% and social networks 23%. Online advertising was 19% of our revenue, up from 12% last year. For the full year, our revenue grew 30% year on year or 38% executing e commerce transactions. Value added service revenue was RMB 23,100,000,000, up 35% year on year and up 12% quarter on quarter. Our social networks revenue was RMB 7,100,000,000, up 37% year on year and up 14% quarter on quarter. Monthly subscriptions increased, notably for our digital content offerings. Paid music downloads boosted growth in our premium music subscriptions and the drama series Country Romance Season 8 drove premium video subscriptions. Online game revenue was RMB16 1,000,000,000 up 33 percent year on year and up 11% quarter on quarter. Mobile and PC game revenue each increased both year on year and sequentially. For the full year 2015, VAS revenue was up 27% on a reported basis and up 24% on a gross to gross basis. Looking at social networks, we took several initiatives to deepen engagement within the QQ community during the quarter. For example, a revenue sharing scheme that incentivized QQ group activity. Under this scheme, group organizers receive a share of in group spending and gifting, also facilitating third parties to share video content within the Qzone News Feed more effectively. For Weixin, we continue to develop our official account ecosystem and expand use cases. The number of official accounts doubled year on year to approximately 20,000,000 and enterprise accounts allowed us to penetrate new verticals such as logistics, real estate and store management. On social payment, red envelope gifting over mobile QQ and Weixin has become a widespread component of holiday greetings in China. Leveraging user activity on our social platforms, we ran a successful Chinese New Year campaign in February. The total number of red envelopes exchanged via mobile QQ was 6,000,000,000 and violation was 32,000,000,000. Moving to PC client games, average concurrent users for our advanced casual games grew 7% year on year to $7,800,000 primarily due to existing games, while average concurrent users from massively multiplayer games grew 3% year on year to $1,700,000 primarily due to new titles. In BaaS Arena Games, League of Legends ran several highly popular esports events deepened user engagement, and we increased paying user activity through in game promotions. In shooter games, we released new items in a soft fire, which drove up ARPU and new content for Call of Duty Online, which boosted usage. In role playing games, our recently launched titles such as Moonlight Blade and Archage contributed to growth in paying users and revenue. We believe we possess a rich PC game pipeline including titles such as Master X Master, a vast arena game MapleStory 2, a side scrolling RPG Orcs Must Die, a tower defense game and War Thunder, a combat game. For smartphone games, in the Q4, our smartphone game portfolio generated RMB7.5 billion revenue, up 72% year on year and up 33% quarter on quarter. We're the market leader in many popular genres, including shooter games, mobile games, ARPG, card RPG and puzzle games. We're seeking to enrich our smartphone gamer experience, 1st, by lining up a diversified portfolio of strong IPs based on PC games and comics that provide inspiration for new mobile games. For example, we've published mobile games based on the Crossfire PC game and on the Naruto animated series. A good consumer response. Secondly, by expanding into new game genres. And thirdly, by developing community and esports cultures around mobile games. In our recent game center upgrade, we bundled video replays into the game apps themselves and enhanced the community management tools for the in game tribes and guilds. Given our operating strengths, improving ability to grow communities and revenue, we believe we're the China publishing partner of choice for game developers low key and globally. For example, we have mobile game publishing relationships with Shanda, Kingsoft Giant and a range of international game developers. Moving on to online advertising, segment revenue was RMB 5,700,000,000, up 118% year on year and up 16% sequentially. Brand advertising revenue was RMB 2,800,000,000 up 89% year on year and 10% sequentially. We increased sell through of mobile news inventory via paid feeds, driving the sequential revenue growth during what's historically a seasonally weak quarter for our brand ad business. Our video ad revenues more than doubled year on year, but were down slightly Q on Q due to the high base from the Voice of China fall program last quarter. Our performance advertising revenue was RMB2.9 billion, up 157% year on year and up 22% quarter on quarter. New ad formats and increased mobile impressions volume delivered the year on year revenue growth. Also, we selected the increased ad load from Qzone and Moments to coincide with the e commerce peak season during the Q4. For the full year 2015, our advertising revenue was RMB 17,500,000,000, up 110% year on year. Looking into 2016, we assume a tougher macro environment may have some negative impact on the overall advertising industry, including our business within it. Reviewing some of our leading ad properties, in news, we shifted mobile inventory from banner into paid feeds, which boosted average CPM and improved sell through rate. In video, our mobile daily video views nearly doubled year on year, thanks to our expanding catalog of popular content. As the NBA's exclusive partner in China, we have launched the season in October with several high profile events and we estimate the average online viewership per NBA game aggregating all platforms across the industry has doubled year on year since we became exclusive partner. In social, we enhanced our audience profiling capability by look alike for Qzone and LBS targeting technology for Weixin. We're adding new ad formats such as auto play video and e coupons and our official accounts grew impression volume and gained wallet share from top advertisers. And with that, I'll pass on to John to discuss the financials. Thanks, Zane. Hello, everyone. For the Q4 of 2015, our total revenue was RMB30.4 billion, up 45% year on year and 14% quarter on quarter. Gross profit was RMB17.8 billion, up 41% year on year or 2% sequentially. Net added gains was RMB249 1,000,000 in the quarter. Operating profit was RMB10.9 billion, up 47% year on year or 5% quarter on quarter. Share losses of associates and joint ventures was RMB 1,300,000,000 for the quarter. The year on year increase mainly reflected higher losses from associates. On a non GAAP basis, Share of losses of associates and joint ventures was RMB164 1,000,000. Income tax expenses were RMB2 1,000,000,000, up 124% year on year or 28% quarter on quarter. The effective tax rate was 21.7 percent for the 4th quarter and 19.6% for the full year 2015. Net profit attributable to shareholders was RMB7.2 billion, up 22% year on year or down 4% quarter on quarter. GAAP diluted EPS was RMB0.759, non GAAP diluted EPS was RMB0.9. For the full year 2015, total revenue was RMB102.9 billion, up 30% from 2014. Gross profit was RMB61.2 billion, up 27% from 2014. Operating profit was RMB40.6 billion, up 33% from 2014. Net profit attributable to shareholders was RMB28.8 billion, up 21% from 2014. After adjustments to non GAAP, operating profit for the 4th quarter was RMB11.5 billion, up 43% year on year or 10% quarter on quarter. Net profit attributable to shareholders was RMB9 1,000,000,000, up 28% year on year or up 8% quarter on quarter. Operating margin was 38% stable year on year or down 2 percentage points quarter on quarter. Net margin was 30%, down 4 percentage points year on year or 2 percentage points quarter on quarter. For the full year 2015, non GAAP operating profit was RMB41.8 billion, up 37% from 2014. Non GAAP operating margin was 41%, up 2 percentage points. Non GAAP net profit attributable to shareholders was RMB32.4 billion, up 31%. Non GAAP net margin was 32% and stable compared to last year. Let's turn to segment gross margin. For the 4th quarter, gross margin for better weather services was 64% stable year on year and quarter on quarter. Gross margin for online advertising was 51%, up 11 percentage points year on year and 2 percentage points quarter on quarter. Social advertising revenue, especially from mobile contributed to best margins. For the full year 2015, gross margin for VAS was 65%. On a gross to gross basis, it was 21 percentage point from last year. Gross margin for online advertising increased 5 percentage points to 49%. Moving on to operating expenses. In the 4th quarter, selling and marketing expenses was RMB3 1,000,000,000, up 47% year on year and up 48% quarter on quarter. Higher marketing and promotion spending on smartphone games, live share, mobile news, services contributed to both year on year and quarter on quarter increase. In addition, the quarter on quarter increase was primarily affected by seasonality. Selling and marketing expense was 10% of quarterly revenue. Included under G and A, R and D expense was RMB2.5 billion, up 15% year on year and 1% quarter on quarter. Total G and A expense was RMB4.8 billion, up 20% year on year and up 9% quarter on quarter. R and D represented 8% of quarterly revenue and total G and A was up 16%. Share based compensation is around 3% of quarterly revenue. On a full year basis, credit and marketing expense was RMB8 1,000,000,000, up 3% from 2014 and represented 8% of revenue. R and D expense was RMB9 1,000,000,000, up 19% from 2014 and represented 9% of revenue. Total G and A was RMB16.8 billion, up 19% over 2014 and represented 16% of revenue. At the quarter end, we had about 30,600 employees, up 11% year on year or 2% quarter on quarter. Let's go through our margin ratios for the Q4. Gross margin dipped 1.9 percentage points year on year to 58.4%, mainly due to increasing bank handling fees in Clearfield. See we see money transfer in our mobile payment platforms. Gross margin was stable sequentially. Non GAAP operating margin was 37.9%, which was 40 stable year on year. Sequentially, it dipped 1.6 percentage points primarily due to higher selling and marketing expenses, partially offset by lower T and A expenses. Non GAAP net margin was 29.6 percent, which decreased 4.2 percentage points year on year and 2.2 percentage points quarter on quarter. The year to year decrease was due to higher income tax expenses and higher share of loss from associates. The sequential dip was mainly due to higher selling and marketing expenses. Turning to earnings per share and proposed dividend for 2015, GAAP basic EPS was RMB3.097 and diluted was RMB3.055. Non GAAP basic EPS was RMB3.485 and diluted was RMB3.437. Subject to the approval of shareholders at the AGM to be held on 18 May 2016, we are proposing an annual dividend of HKD0.47 per share. Finally, let me share a few key financial metrics for you with you. Total CapEx was RMB1.9 million for the 4th quarter, up 17% year on year or 14% quarter on quarter. Operating CapEx was RMB1.3 billion and non operating CapEx was RMB586 1,000,000. Free cash flow for the 4th quarter reached RMB16.2 billion, up 70 6% year on year or 144% quarter on quarter, which was mainly attributable to the increase of operating cash flow from our games and advertising businesses. At year end, our net cash position was RMB19.1 billion, down 16% year on year or 10% quarter on quarter. The negative year to year comparison was mainly due to payments for license content, dividends and M and A, partially offset by free cash flow generated during the year. The valuation of our U. S. Dollar denominated DAS also contributed to the decrease. The fair market value of our listed associates and our value for both self financial assets were approximately RMB98 1,000,000,000. That concludes our presentation. Thank you. Thank you. We shall open the floor for questions now. Operator, we will take one main question and one follow-up question each time. Shall we invite the first question now? Thank you. We will now begin the question and answer session. Our first question comes from the line of Wendy Huang from Macquarie. Please ask your questions. Thank you for taking my question. My first question is about your broad Internet finance business. You mentioned mobile payment MAU increased significantly. So what's the absolute number for that mobile payment MAU? And also what kind of revenue model that you will try to build around your Internet finance business? Okay. Well, in terms of MAU, we have never disclosed it and sort of we are not providing the exact number. I think sort of we try to provide relative growth to give you some color on sort of the growth of the activity. In the past, we have announced that our total number in costs signed is was more than 200,000,000 Now the number is safely more than 300,000,000. So I think this should give you a sense of the continued growth of both the number of users as well as the level of activity. In terms of mobile payment, it's interesting that you asked the question because it was actually generating losses and the loss has been accelerating at a very fast clip as the level of activity increased because as a payment platform, we actually sort of have to pay the bank a certain handle fee when user move their money into the payment system. And when it's actually used for merchant payment and sort of we get some revenue from the merchants, But if it's actually sort of a user to user transfer, then we don't receive any fees. So that's why it was actually generating loss. And recently, I think we actually have told the public that in the month of January, the amount of bank handling fee that we pay minus the amount of money that we get from the users actually exceed $300,000,000 a month. So it's actually sort of a pretty significant number. And as a result, we announced on March 1 that we have to put on a fee when people extract money out from the payment platform onto their bank card. So this measure is actually help us to contain the cost. Now in terms of what we see as the revenue model for payment platform, Number 1, when the payment is actually to merchants, then we actually charge merchants a certain fee and that's actually more than able to cover our bank handling charge. Now because of competition, sometimes we actually have to reduce the fee and even subsidize some of the merchants. So as a result, we actually believe that the payment platform itself is not going to be a profitable business. But what's the value actually to us? The value of the payment platform is that there's a lot of activities that can happen. It will benefit our overall ecosystem. And when we actually say we will try to make our ecosystem a diverse one and we start to put advertising into our ecosystem then sort of having the ability to pay actually helps to make the advertising more valuable to merchants. And also, we believe in the longer term, having the payment pathway actually help us to secure the important launch pad of online financial transactions, for example, sort of our wealth management platform, LiCaitung and our consumer lending business in our affiliate WeBank actually rely on the fact that we have a lot of people active on our payment platform, a lot of people who have binded their bank cards to Yuesheng and to the QQ account. And when we have that, then sort of being able to identify these as potential customers and directing them to the online financial applications will be much easier. Thanks, Martin. My second question is about your advertising business. So on the revenue front, you mentioned that mobile advertising already accounted for 65% of the total revenue total advertising revenue in 2015. I just wonder what kind of pricing that mobile is at the moment, whether CPM is still at a discount to PC CPM or it has already exceeded the PC, CPM due to its more targeting nature? And also, how do you see your advertising model to develop differently from Facebook down the road? So on the cost side, I think in the past 2 quarters, you definitely mentioned about the worst of China and also NDA cost in the Q4. Given the uncertain competition in the dealer market, how should we look at 20 sixteen's common cost? Thank you. Yes. On mobile advertising, PC advertising sort of has got a very, I would say, bipolar type of inventory composition. There is the homepage and then there's everything else. The homepage typically sort of sales very well and sort of commands a high CPM. But then sort of very quickly, when you go to sort of the deeper pages, then the advertising the CPM drops significantly. Now on mobile, what we're seeing is that because we can do it on the feed and because we can actually sort of get the advertising in a more targeted way as you said. The CPM that we get on the different type of pages, we're actually sort of not that different. So that's why on aggregate basis, we would say the mobile platform is a better place to put advertising. And what you may not be able to command exactly the same CPM as front page, but sort of there's actually much more inventories that you can sell that commands a respectable CPM in terms of content costs. In terms of the content costs, you mentioned that video advertising revenue grew more than 100 percent year on year and video subscriptions grew a little more than 600% year on year. So of course, when we see an industry that's exhibiting those transformational rates of growth, then it's very natural that you should expect us to continue reinvesting in content, both exclusive and non exclusive. As a reminder, some of the exclusive content we already possess includes NBA rights, HBO, Star Wars, James Bond 7, Paramount early window rights. But we'll continue to look for rights just as some of our big competitors will because the video industry is a very fast growing dynamic industry. And if you look at the video subscriptions opportunity, I think really as a couple of competitors are all growing, very quickly as a better regulatory environment and consumers more willing to pay for premium content really creates a business model that didn't exist in the recent past. Thank you. Operator, next question please. Thank Your next question comes from the line of Eddie Long from Merrill Lynch. Please ask your questions. Good evening. Thank you for taking my questions. Regarding your performance shipping advertising, as we have seen more inventory from different types of applications, just curious how does it affect 2 things. Number 1 is the average eCPM you get from across the board. And then secondly, how that would affect the gross margins of your performance based advertising business? And then finally, perhaps just a housekeeping question. Any update on the ARPU trend of your different types of games that would be great? Thank you. So on the advertising, eCPM and gross margin, as you'd expect, we're placing performance advertising across a wide range of inventories and different inventories have different trends, different formats have different trends. For example, when we put advertising into 3rd party ad network, which we're building out initially, the eCPM might be a little bit lower, whereas when we put advertising into our Weixin Moments newsfeed, then the eCPM would be materially higher. And if we put advertising into a video format, then that would be maturity by a CPM versus a text format. In terms of the gross margin, the pricing is the less important determinant in terms of gross margin. The bigger determinant of our performance advertising gross margin is whether the inventory is owned inventory, such as the Weixin Moments or kind of shared inventory where we're the exclusive distributor, such as the Weixin official accounts or 3rd party inventory such as our ad network. It's really the nature of the owner of the inventory that determines the gross margin. But in general, the incremental gross margin on our performance advertising business is quite high because much of the inventory is owned in the country given our substantial unutilized traffic. In relation to the app, for MMOG, it ranges from $265,000,000 to $410,000,000 in quarter 4. Advanced casual gains, 85 to 3 10. And for structural gains, it brings us within 100 and 85 to 195.60 as a portfolio. Thank you. Next question, please. Your next question comes from the line of Ellen Helliver from Deutsche Bank. Please ask your question. Hello, Ellen? So he's not on the line. We'll move to the next question, please. Thank you. Your next question comes from the line of Xu Zhang from HSBC. Please ask your question. Good evening. Thank you so much for taking my questions. I have two quick questions. Firstly, I was wondering if you can give us sort of an update and maybe an outlook on WeChat Moments advertising. You mentioned the potential to increase your ad load. So I'm wondering sort of what do you think about Moments for this year? And then secondly, if you can give us an update on Weebank, any sort of data on sort of micro loans or sort of user behavior would be very helpful. Thank you. Okay. In terms of moment ads, right, I would say it is ad format and ad platform, which carries significant long term opportunity. But it's a very important engagement tool for our users. So we want to sort of do it slowly and do it right. So if you look at our performance ads revenue, a big chunk is still actually on our Qzone feed. And then there's a significant portion, which is on the official accounts or the content page in the official accounts. And then it's the moments. So I think over time, as we continue to improve the targeting technology as well as it was continued to educate more and more advertisers about how they create the right type of moment ads in a stylish and in a social way, then we'll continue to release more inventories. But that's not the highest priority for us. The highest priority for us is actually to make sure that our technology is done right and we continue to expand the universe of advertisers who are capable and who are proficient in developing performance assets, especially at moment. Now as it relates to WeBank, I think LeBank is performing according to plan. They have their flagship product, which is a consumer loan product, which has been signing up a pretty good number of users and it leverages our WeChat and our QQ channel to reach users in a targeted way. It has a white list which allows it to target the credit worthy users. And it's gradually expanding the white list to include more and more users as it continues to refine its credit model. On the funding end, it's actually using a capital light model so that it actually partnered with a lot of banks to provide loans in a joint basis. So basically, it's not a traditional bank. Essentially, it's a bank cooperation or partnership platform with banking license. And I think that model is actually working out pretty nicely and we continue to gradually increase the number of users that we feed into that system. Thank you, Martin. Next question please. Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your question. Hi. Thanks for taking my questions. I wonder if management can share some observations on the user behavior for paid premium content. I wonder the users are mainly from existing Q2 users or they may not be existing color paying members on Tencent. And how do you expect the pay subscription growth? Is that mainly from kind of cost selling to different categories as we have more diverse subscription content? Or is it going to be more spread out into more new users going to subscription of our premium content. And I wonder if you can also comment on is there any kind of synergy that brings into maybe some pay subscription to some of these services within our company's service and content ecosystem? Thanks. So in terms of the nature of the consumers who are subscribing to our digital content services, it's relatively nationwide and it's relatively balanced across different demographics, although like most things in the net, it skewed a little bit to men and a little bit to younger users. We do do some limited upselling of our traditional privileged subscriptions into the content subscriptions, but historically that's been a small minority of the subscriber growth. The large majority has been activating people colds who previously weren't paying us and persuading them to pay us because they love music or they love movies or they love literature. When we look at the growth opportunity going forward, I think that as Martin alluded to in the opening remarks, we feel that's an increasingly supportive macro environment in terms of government regulations, in terms of the app stores, kind of policing content, and in terms of consumers becoming more sophisticated, more willing to pay for content. And then finally, in terms of the content suppliers willing to make their content available more widely behind a premium service. So while there's many individual sort of tactics, that's the broad backdrop. Drop. Another factor that I think has been particularly impacted in the last 12 or 18 months has been the growth of mobile payment platforms such as our Weixin Pay because when we have surveyed consumers in the past or when movie studios or record labels have surveyed consumers in the past and talked to them about why they're not paying for premium content, then typically the answer was not that they felt 10 or 20 renminbi per month, which is the rate we charge is too expensive. The answer was that it was inconvenient to pay. If they wanted to watch a movie now, if they wanted to listen to a Taylor Swift record now, that they didn't want to have to go to a 711 and buy a prepaid card in order to activate that experience. But now that they have a smartphone in their hand and that smartphone is bound to their bank accounts and then they can pay instantaneously through Weixin Pay, then it makes what was previously inconvenient, inaccessible service much more convenient and accessible. So we think those are all the factors supporting the growth, and those should also continue to support the growth going forward. Of course, we'll continue to work with content suppliers. And to some extent, we're also our growth is also a function of how our competitors behave a little bit if our competitors adopt a forward looking mentality and try to nurture premium content consumption as well, then that's good for them, but it's also good for us and for the overall industry. Thank you. Operator, next question please. The next question comes from the line of Natalie Wu from CICC. Please ask your questions. Hello, Nathalie? Okay, operator, we move to the next question, please. All right. The next question will come from the line of Eric Koon from UBS. Please ask your question. Good evening, management. This is Ming Xu asking on behalf of Eric. So I have two questions. The first question is regarding WeChat. So firstly, could you share with us the maybe the split between in terms of moment ads, could you share with us the split between big advertisers and the long tail advertisers in terms of number and also in terms of revenue? We also noticed recently that you have lowered the minimum placing requirement for each ad. So I'm wondering what's the update in the past 1 month and also what's your outlook for the rest of 2016? Secondly, could you share with us some color on the application account and also corporate WeChat? And then I have a follow-up on games. I think, Meng, that will be the 2 questions. Are we going to take some of the meetings? Thank you. In terms of the Moments advertising, at this point, it's really that the bigger advertisers, that's where we're focused in because it's initially most appealing for the bigger advertisers. As far as the outlook is concerned, I'd refer you back to Martin's earlier comments that we think this has a great long term potential as evidenced by the success of global peers as evidenced by the advertiser reaction to our initial batch of ads. But we'll manage the growth carefully. In terms of Yes. In terms of app well, you actually asked 2 questions, which are not really launched yet. So they're forward looking questions. I think the idea of application account is really helping the official account owners to provide more functionality and more customized functionality for their official account. So for the traditional official account, it's a menu based and it's conversation based. And we saw that with a lot of different types of merchants and organizations using the official accounts. Some of them actually want to upgrade experience and provide a light app for the users through our platform. So that's why we are now designing the aperture accounts to cater to these kind of moves. In terms of corporate I'm or enterprise I'm we clearly see that more and more people are using WeChat for business purpose. And there's sort of a lot of mixing between sort of personal usage and enterprise usage. And we also saw that enterprises now want to have a more unified experience for their employees. So that's the idea behind our enterprise I'm and both of the products are actually in the making right now. So I think we can provide you with more updates when we actually launch the product. Okay. Thank you. Next question, please. Your next question comes from the line of John Choi from Daiwa Securities. Please ask your question. Thank you for taking my question. I have actually a question on mobile games. Could management give more color, particularly in the user behavior, given that you guys have been always already been doing games for 3 years and now we've started to see more IP from your PC launching on the mobile side. And particularly if we look at the developed markets, it seems like the mobile game market has been maturing. So I think for this year, we should continue to see strong growth. But I mean, how long do you think mobile game will continue to deliver strong growth momentum? Thank you. Well, I think that mobile games individually and mobile games in So mobile games individually, titles move in and out of flavor and that can cause volatility for individual products and individual companies. The mobile game industry in aggregate, we think it's on a strong secular growth trend. And if we look at how user behavior has evolved in the U. S. And in Europe and Japan, there was a relatively rapid move from casual games into mid hardcore games with long life and greater monetization. In China, it's been a more winding path. I think that 3 years ago, most of the games in the market were very casual games with correspondingly very low ARPU. Then we started to see a handful of mid core games enter the market with much higher ARPU, but typically shorter life. Early 2015, we began to see some role playing games come into the market, which appear to exhibit decent ARPU and a decent longevity, but relatively small absolute number of users. And then I think as the year has moved on, we have tried to bring games to the market that are mid core in nature, have respectable ARPU, have, we'd hope, a sundry of longevity, but also have actually fairly sizable user bases. So as the game markets move through those, then it's expanded with each new generation iteration. And looking forward, while we've already pioneered some genres such as mobile shooting games, mobile fast arena games, there's many, many more genres popular on the PC, but not yet popular on mobile and many genres that are popular in the West or in Japan or Korea, but not yet popular in China that we think will become popular in time and we hope to support the growth of the overall mobile game industry. Thank you. Operator, in the interest of time, we'll take the last few questions, please. Your next question comes from the line of Thomas Chong from Citigroup. Please ask your question. Hi. Thanks management for taking my questions. I have two questions. The first question you said in the press release, you talked about the cloud computing business delivered over 100% year on year revenue growth. I think this is one of the few times that we talked about some monetization for the cloud computing business. Can management talk about your view on that front and the trend for the next couple of years? And secondly, the question is about payments. Can management comment about how Apple Pay will affect the competitive landscape in China? Thanks. Yes. In terms of cloud business, right, we believe the cloud business is a very strategic business for us to grow over the long run. The reason is because it's part of our overall connection and ecosystem strategy. As we continue to build our platform, our social ad platform, we get into a lot of relationship with a lot of companies, entrepreneurial companies, large and small companies providing services. Our App Store, for example, also host a lot of these companies. So as a result, we actually see a lot of these companies as sources for our cloud business. And our cloud business is a gateway for us to leverage our very large cloud computing in house and cloud computing infrastructure. So we have sort of the economies of scale just based on our existing in house business. And at the same time, we have developed over the years many, many technologies such as acceleration technologies such as security, such as bandwidth saving, such as caching technologies, which we can actually share with a lot of companies in our ecosystem. So as a result, we have been building our cloud business. We started off from the game vertical. And in the course of last year, we have expanded it to cover many other industries. And we have seen strong growth traction in this business, and we'll continue to invest in this business as part of our overall ecosystem strategy. Now in terms of the payment, I think sort of we do not want to sort of be very too much focused on what other companies are doing. What we are focused on is actually sort of building our own payment platform because it's actually very tied with our own ecosystem. And so far, we have been seeing strong traction in terms of both number of users adopting our payment solution, in terms of merchant adopting our payment solution as well as in terms of user activity. Thank you. Operator, we'll take the last question, please. Thank you. The last question comes from the line of Lin Zhao from 86 Research. Please ask your question. Thank you. Two questions. First question on the mobile gaming. So can you talk about the mobile games in your pipeline? Will you slot those games evenly for the balance of this year and next year? Or do you expect a sharp increase in the supply of such games, especially with the mobile MMO games? And then you want to launch them quickly to gain market share? That's question number 1. Question number 2, it's on margin. So correct me if I'm wrong, from Q4 performance and the fact that you are charging users fees for withdrawing money from the wallet, management seems emphasizing profit margins a bit more than the past? If not, what are the areas of the heavy expenses this year? Thank you. I think on the mobile games, it's never been Tencent's policy to rush a lot of product to market in order to grab market share. We don't think that that's how the mobile game industry works at this point in time. So we have what we hope is a very good pipeline of mobile game titles and it will release them at a measured pace through the year end. We hope to give each of the new mobile games time to find its speed and grow its audience. And if we do that, then our market share will take care of itself. And more importantly, the overall market will take care of itself. I think when we have launched successful fast arena games or shooter games, we haven't been pulling users or revenue away from competitors. We've been creating a demand, creating an audience and creating revenue that wouldn't exist were it not what we're doing. So we're not particularly focused on the market share grab and we're certainly not front loading or hand crushing a huge quantity of mobile games to market in a short period of time. Yes. In terms of margin, I think sort of I will repeat what James said, right? We're not really focused on margin. The reason is because our margin is actually a collection of different businesses with very different natures, right? So it's very difficult to sort of just draw an implication from a particular number, which sort of is a composite of many, many different elements. So addressing a little bit to your question, the bank handling fee was actually accelerating throughout the past, so that I would say 6 months. And the highest number reached was actually sort of January, so that was the number and it becomes sort of very significant. And Pan sort of we have to put in some measures to containment. Now in terms of the margin itself, I would say sort of the margin the bigger impact on the margins that we're tracking in the course of last year and Q4 was mainly because of the cost that we incurred in sharing in acquiring content from our partners. For example, games, we actually said we have a lot of partners in which we operate the games, we publish the games and then we have revenue share. And for example, in terms of video and the music content, we actually sort of share we pay licensing fees to our content partners and we have incurred these costs. And with this sharing to the partners is actually sort of going to induce the margin on our business. But I think sort of it's actually a healthy increase, right, because it means that we are actually becoming the gateway of revenue for a lot of our partners and that's sort of a healthy relationship. And over time, you can actually leverage the creativity and value created of these partners to create more hiding and more attraction for our leads. So I think that's actually a healthy decrease over time. So I think sort of it's hard to just look at that number. I think we actually have to look at 15 business lines and look at the margin trends, then it would be much more informative insights. Okay. Thank you very much for joining us this evening. We're closing the call now. If you wish to check our press release and other financial information, please visit our company website at www.tenzen.com to flesh out. A replay of this webcast will also be available soon. Thank you and see you next quarter. Thank you. That does conclude our conference for today. Thank you for participating Tencent Holdings Limited 20 15 4th quarter and annual results announcement conference call. You may disconnect now.