Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Holdings Limited 2015 second quarter and interim results announcement conference call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press star one on the telephone to join the question queue. Your name will be announced when it's your turn to ask a question. If you wish to cancel your question, please press the pound or hash key. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Ms. Catherine Chan from Tencent. Please go ahead, Ms. Chan.
Thank you, operator. Good evening. Welcome to the second quarter of 2015 results conference call. I'm Catherine Chan 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 not 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 our non-GAAP measures, please refer to our disclosure documents downloadable on www.tencent.com/ir. Now, let me introduce the management team on the call tonight.
With our Chairman and CEO, Mr. Pony Ma, President, Mr. Martin Lau, Chief Strategy Officer, Mr. James Mitchell, and Chief Financial Officer, Mr. John Lo. Pony will kick off with a short overview. Martin will speak to strategy. James will review our business. John will go through the financials before we take your questions. I'll now turn the call over to Pony.
Thank you, Catherine. Good evening. Thank you for joining us. During the second quarter of 2015, we sustained our leadership across our social, games, and media platforms. Operationally, we made notable progress across our portfolio of mobile utilities with a Mobile Manager security service and Mobile QQ Browser and Yingyongbao App Store moving into industry leadership positions. Strategically, we achieved rapid growth of our mobile payment solutions and expand subscriber base for our premium literature, music, and video services. Financially, we delivered a solid set of results benefiting from the growth of our online advertising. Let me highlight a few numbers for you and leave the details to John's financial section. Total revenue, excluding e-commerce transactions, grew 27% year-on-year to CNY 23.3 billion. Sequentially, it rose 5%. Non-GAAP operating profit was CNY 10.3 billion, up 34% year-on-year and 10% quarter-on-quarter.
Non-GAAP operating margin crept up two percentage points to 44% for the quarter. Non-GAAP net profit to shareholders was CNY 8.0 billion, up 32% year-on-year and 11% quarter-on-quarter. For our key platforms, total MAU for QQ was 843 million, within which smart devices MAU grew 20% year-on-year to 627 million. Total MAU for Qzone was 659 million, within which smart devices MAU rose 15% year-on-year to 574 million. Weixin and WeChat reached a combined MAU of 600 million, up 37% year-on-year. For online games platform, we retained leadership across PC, client, web, and mobile games in terms of users and revenues. James will discuss this in the business review section. Among our media platforms, our mobile news is the most popular among Internet users in China.
Our mobile video service more than doubled its video traffic year-on-year, anchoring our leadership across PC and mobile. For our mobile utilities portfolio, we recently achieved significant milestones in product performance and market share. Martin will share more with you in the strategic highlight section. With that, I will pass to Martin.
Thank you, Pony, and good evening and good morning to everybody. For this quarter's strategic highlight, I would like to highlight the breakthrough that we have achieved in our mobile utilities. Our mobile utilities include security, browser, and app store, and they are fundamental in providing the infrastructure support to our expanding mobile ecosystem. This portfolio of mobile utility service is very valuable to us, where they technically support each other to deliver a seamless product experience to our users, and also cross-channel traffic to our partners in the ecosystem. Each one of these apps rank within the top 20 mobile apps in China in terms of MAU. On its own, our Mobile Manager ensures a secure environment for digital consumption and transactions online. Mobile QQ Browser and Yingyongbao respectively provide our users quick access to a broadened mix of web-based and app-based content and services.
Together, the trio allowed us to establish constructive relationship with a very large number of industry partners. Benefiting from our overall mobile social franchise, as well as our continuous efforts on product innovation and performance enhancement, we're able to leap from a late entrant to a market leader in each one of these area. Recently, we're beginning to see the financial benefits materialize through advertising in Mobile QQ Browser and in-app user spending in Yingyongbao app store. I'll discuss each one of these mobile utilities in turn. Starting with our security service, Mobile Manager, according to QuestMobile, our mobile security app gains market share continuously in terms of monthly active users in the past years, and in the most recent month, overtook the incumbent industry leader. How do we achieve this? We provide best-in-class performance across core protection features such as virus scanning, cleaning, and speed boosting.
We innovate and differentiate our product offering by investing to enhance our capabilities, especially in payment security and anti-fraud phone database. This enabled us to earn trust and credibility from users. In addition to our standalone security app, we are also building a network of partners, including handset manufacturers, ROM developers, and O2O partners, offering them our mobile security solution through a software development kit as well as open API. Our standalone app and security solution together now protects over 60% of Android smartphones and support leading Android app stores in China. We believe a neutral and secure online environment is crucial to the development of our mobile ecosystem in China, and our mobile security service ensure this is the case.
Turning to Mobile QQ Browser, our standalone app has evolved into a platform that supports HTML5 websites and provides quick access to digital content such as video and literature to our users. According to QuestMobile data for June, our mobile browser had achieved the number 1 position by monthly active users. We're gradually monetizing browser traffic through advertising. In addition to our standalone app, we also use our browser kernel to support Tencent Browser service, which enables viewing of web-based content within non-browser apps such as Weixin, Mobile QQ, and many of our partners' apps. As these apps continue to attract users and serve content via our browsing solution, we saw very heavy volume of page views traffic and monthly active users on Tencent Browser service, exceeding any standalone mobile browsers in China.
Moving on to Yingyongbao app store, our market share by monthly active users doubled in the last 12 months to make Yingyongbao the second most popular Android app store in China, according to iResearch. We believe we lead the industry in terms of the total number of apps available and in terms of the speed of bringing updates for majority of top apps to our users. Leveraging our mobile social franchise, we have refined our targeted recommendation based on social and interest graphs, and we're working with partners to deep link in-app content. These efforts enhance the overall user experience, the download conversion, as well as the revisits to our app store, thereby enabling us to increase our market share on a consistent basis. On a monetization front, we have implemented revenue sharing arrangements with game developers and are also testing our cost per download advertising.
With that, I'll pass to James to talk about our business review.
Thank you, Martin. In the second quarter of 2015, our total revenue grew 19% year-on-year. Excluding e-commerce transactions, total revenue increased 27% year-on-year. VAS represented 79% of our revenue, within which online games contributed 56% and social networks, 23%. Online advertising represented 17% of total revenue, up seven percentage points year-on-year. For our value-added services segment, revenue was CNY 18.4 billion, up 17% year-on-year and down 1% quarter-on-quarter. Social networks revenue was CNY 5.4 billion, up 18% year-on-year and up 3% quarter-on-quarter. Premium subscription packages and item-based content drove the year-on-year revenue growth, while subscriptions for mobile privileges and for premium literature, music, and video services led to sequential revenue increase. Online games revenue was CNY 13 billion, up 17% year-on-year and down 3% quarter-on-quarter. Revenue grew year-on-year due to higher monetization of core PC gamers and to contributions from new smartphone games.
Adverse seasonality for PC games in the second quarter resulted in the sequential revenue decline. Looking at social networks, on Mobile QQ, we enabled direct streaming of music, books, comics, and videos to deepen user engagements and promote digital content purchases. We integrated access for over 200,000 interest tribes into Mobile QQ to facilitate discovery of popular chat topics such as celebrities, sports, and movies. For Mobile Qzone, we introduced a smartphone storyline and new photo editing features that boosted photo sharing activity. Average daily photo uploads increased 70% year-on-year in June. For Weixin, broader use of digital red envelopes in everyday social interactions and corporate marketing events led to a dramatic increase in payment transaction volume year-on-year.
We're encouraging content producers to enhance the quality of their content through sharing our advertising revenue with them and through incentive schemes, such as enabling users to send cash rewards to creators of especially interesting content. We've connected users in 47 cities to local health, transport, utilities, and municipal services as part of our Internet Plus strategy. Looking at PC client games, total average concurrent users increased year-on-year, although the mix shift from massively multiplayer online games to advanced casual games continued. Within advanced casual games, League of Legends grew users and increased monetization through new skins and gifts packs. We are enhancing our sports games, FIFA Online 3 and NBA 2K Online, by tying them more closely into high-profile sports events such as the new NBA season, where we hold exclusive China online distribution rights.
We're investing time and energy into e-sports activities, which we believe enhance community activity around our games and so contribute to games longevity. We organize some of the most watched e-sports events in China. For massively multiplayer online games, we saw lower average concurrent users and higher spending per user year-on-year. In early July, we began large-scale beta testing of Moonlight Blade, a new self-developed martial arts RPG. Initial user feedback is positive, and we're internally testing several high-profile new titles, including Monster Hunter Online. For smartphone games, we generated revenue of CNY 4.5 billion in the second quarter, up 11% year-on-year on a gross to gross basis and up 1% quarter-on-quarter. We remain the largest platform for smartphone games in China, operating the top titles in the playing card, shooting, running, and fighter plane genres.
We're implementing several strategies to extend our leadership and to benefit from the increase in user propensity to spend money on mid-core mobile games. Specifically, over the coming months, you'll see us exporting some of our most popular PC game IPs onto mobile. We're also bringing some of our PC game best practices in the areas of testing, marketing, and operations to mobile so as to encourage user engagement, enhance user spending, and extend game's life cycle. We're developing new internal marketing resources to promote games more broadly. In the Red Ocean categories that are well developed and intensely competitive, such as battle card and role-playing games, we're focusing our key marketing resources more tightly on our most promising titles to cut through the industry clutter.
We're developing high-quality games in Blue Ocean genres such as action, role-playing, and tower defense to cultivate new user behaviors, as we've already done with our WeFire shooting game. Moving to online advertising, segment revenue was CNY 4.1 billion, up 97% year-on-year and up 50% quarter-on-quarter. Mobile contributed over 60% of our total advertising revenue. Our brand advertising revenue was CNY 2 billion, up 47% year-on-year and up 45% quarter-on-quarter. Year-on-year revenue growth flowed from increased video traffic and higher sell-through of mobile ad inventory for both portal and video. Quarter-on-quarter revenue growth positive benefited from positive seasonality. Our performance advertising revenue was CNY 2.1 billion, up over 100% year-on-year and up 54% quarter-on-quarter.
Revenue jumps year-on-year due to new ad inventories, especially in Qzone and Weixin Official Accounts, and due to higher cost per click. Sequentially, increased ad impressions and positive seasonality drove the performance advertising revenue growth. For brand advertising, we believe we again outgrew the overall market. Based on internal tracking over the past 12 months, we've gained substantial market share in 3 of our top 5 advertiser categories: personal care, online services, and consumer electronics. We've sustained our market share in food and beverage and automobiles. Through our video platform, traffic increased substantially and revenue more than doubled year-on-year. Our mobile video views more than doubled year-on-year, and mobile now contributes most of our video ad revenue. During the second half of 2015, we're adding more exclusive content, including The Voice of China season 4 and NBA coverage.
For our mobile news service, average daily page views and the number of advertisers both increased substantially, such that our mobile news ad revenue more than doubled year-on-year and exceeded our PC portal ad revenue. For social performance advertising, we have integrated Weixin Official Account ads into the Guangdian Tong engines, simplifying the advertiser experience and increasing liquidity. The advertiser base or number of advertisers on Qzone tripled year-on-year, supporting higher cost per click and overall revenue. Advertising on Weixin Official Accounts benefited from more traffic and more ad impressions. Advertising on Weixin Moments offers significant potential, especially among brand advertisers. We're currently adding new categories of brand advertisers to the mix, including luxury products and financial services. We ran over 60 advertisements on Weixin Moments in the second quarter.
In the second half of the year, we'll continue to refine our ad formats, our ad approval processes, and our ad targeting within Weixin Moments. With that, I'll pass you over to John to talk through the financials.
Thank you, James. Hello, everyone. For the second quarter of 2015, our total revenue was CNY 23.4 billion, up 19% year-on-year or 5% quarter-on-quarter. Gross profit was CNY 14.4 billion, up 19% year-on-year or 7% quarter-on-quarter. Operating profit was CNY 10 billion, up 28% year-on-year or 7% quarter-on-quarter. Income tax expense was CNY 1.8 billion, up 10% year-on-year or 9% quarter-on-quarter. Effective tax rate for the quarter was 20%. Net profit attributable to shareholders was CNY 7.3 billion, up 25% year-on-year or 6% quarter-on-quarter. In the second quarter, we included non-GAAP adjustments for material associates in the definition of our non-GAAP measures. We believe this will reflect a more accurate picture of our core businesses and renders us more easily comparable with peers. Non-GAAP operating profit for the quarter was CNY 10.3 billion, up 34% year-on-year or 10% quarter-on-quarter.
Non-GAAP net profit attributable to shareholders was CNY 8 billion, up 32% year-on-year or 11% quarter-on-quarter. Non-GAAP diluted EPS was CNY 0.849 for the quarter. Turning on to segment gross margin. Gross margin for value-added services was 66%, down one percentage point year-on-year on a gross-to-gross basis and up one percentage point quarter-on-quarter. The year-to-year dip was primarily due to increased revenue sharing costs from a larger mix of third-party smartphone games and increased channel costs. The sequential change reflected a mix shift towards higher margin first-party games in the second quarter. Gross margin for online advertising was 52%, up 7 percentage points year-on-year or 13 percentage points quarter-on-quarter. The higher gross margin resulted from rapid advertising revenue growth, partially offset by high sharing and content costs. Moving to operating expenses. Selling and marketing expense was CNY 1.6 billion, down 19% year-on-year or up 21% quarter-on-quarter.
The year-on-year decrease mainly reflected reduced subsidies relating to taxi booking services, while the sequential jump was a result of increased advertising spend to promote key products and mobile payment solutions. G&A expense was CNY 4 billion, up 16% year-on-year or 9% quarter-on-quarter, of which R&D expense was CNY 2.1 billion, up 10% year-on-year or 2% quarter-on-quarter. G&A expense increased mainly due to annual salary review and higher R&D expenses. As a percentage of quarterly revenue, selling and marketing expense was 7% and G&A 17%. R&D represented 9% of quarterly revenue. Share-based compensation was approximately 3% of quarterly revenue. As at quarter end, we had 28,072 employees, up 12% year-on-year and broadly stable quarter-on-quarter. Looking at margin ratios for the second quarter, gross margin was 61.6%. It increased 2.1 percentage points year-on-year on a gross-to-gross basis, and increased 1.6 percentage points quarter-on-quarter.
The year-on-year increase primarily reflected a mix shift away from low-margin revenues following the divestment of our e-commerce business. The sequential increase mainly reflected higher online advertising gross margin as well as a mix shift to higher margin games within our game portfolio. non-GAAP operating margin was 44%. It was up 6.4 percentage points year-on-year on a gross-to-gross basis, and up 2 percentage points quarter-on-quarter. Higher operating margins year-on-year benefited from higher gross margins and reduced selling and marketing expenses as a proportion of total revenues. The sequential uptake mainly flowed from higher gross margins. non-GAAP net margin was 34.5%. It was up 4.8 percentage points year-on-year on a gross-to-gross basis and up 1.9 percentage points quarter-on-quarter. The higher net margin year-on-year was mainly due to higher operating margin, partly offset by recognized share of loss of associates as a proportion of total revenues.
The sequential increase in net margin was due to a higher operating margin. For the second quarter, total CapEx was RMB 2.8 billion, up 210% year-on-year and 113% quarter-on-quarter. Operating CapEx was RMB 801 million, up 38% year-on-year and 22% quarter-on-quarter. The increase in operating CapEx is primarily for the purchase of network equipment and replacement of office computers. Non-operating CapEx was RMB 2 billion, up 507% year-on-year and 202% quarter-on-quarter. Non-operating CapEx in the second quarter mainly relates to land use rights for planned construction of a new office building to support business growth. Free cash flow was RMB 5.4 billion, down 14% year-on-year and 35% quarter-on-quarter. Free cash flow decreased on higher capital expenditure paid during the quarter for the land use right mentioned above. Our net cash position at quarter end was RMB 21.7 billion, down 4% year-on-year and 14% quarter-on-quarter.
Year-on-year decline in net cash was mainly due to dividend payments of approximately RMB 2.8 billion of about $450 million in the second quarter. Fair market value of our listed associates and available-for-sale financial assets rose to approximately RMB 90 billion as at quarter end. This concludes our presentation. Thank you.
Thank you, operator. We shall open the floor for questions, please.
Thank you.
Thank you.
We will now begin the question and answer session. If you wish to ask a question, please press star one on the telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there will be a short pause as the questions are collated. Your first question comes from the line of Alicia Yap from Barclays. Please ask your questions.
Hi. Good morning. Can you hear me? Good evening, everyone. Thanks for taking my questions. I have some first questions that, can you elaborate a bit more details on your plans and strategy, how to potentially increase the payment fees revenue that you could generate via your partners that integrated into the Weixin and Mobile QQ. Related to that, can you share with us currently what are the rankings of the payment transaction volume that come through the WeChat Pay payment currently? For example, after the gaming payment, the red packet, friend circle transfer, what are some of the higher frequency transaction that you could monetize and your plan for increasing the fee-based income in the future?
Yeah. In terms of payment, I think the strategy for us is really to increase the number of users that use our payment solution, thereby increasing the attractiveness of the payment solution to merchants, and thereby increasing the number of transactions that actually go through our payment system. At this point in time, we actually do not really look at the revenue as much. I think broadly speaking, our payment business is actually at breakeven from a fee generation versus sort of banking charge perspective. We do spend quite a bit of money, actually, in terms of subsidies in order to drive the adoption of the payment solution among users and among merchants. The most important thing for us is really to increase the usage.
We believe this is actually important for our overall value, not in the sense of generating revenue, but more importantly, we can increase the efficiency of our advertising business in the future. When you actually have merchants and service providers who actually can get their users to respond to an ad and pay for the services sort of in a very seamless way, then sort of the advertising rates will go up. In addition to that, payment also generates a very good entry point for our online finance applications going forward, and it also provides us a lot of data which we believe the consumption pattern of users, and that would also help our targeted advertising performance. I think that's where we stand on the strategic plan for our payment solution. In terms of the key categories of payments.
You have sort of the red packet, the person to person, and then from there point onwards, we have a number of virtual items, let's say sort of mobile charge up, the people who pay for games and Tencent as well as our partners' virtual services. In addition to that, we have a whole range of O2O services, as well as e-commerce services which sort of follow that in terms of ranking.
I see. Thank you, Martin. My second question is on mobile games. Excluding your strength in the Yingyongbao app store, seems like the tractions on Mobile QQ and WeChat Game Center has experienced some slowdown. Is that mainly due to the saturations of the mobile gamers, which is more an industry issue, or is it just because during second quarter for Tencent, there was lack of the big hit titles released in the WeChat Game Center? How should we think about the growth outlook for the overall mobile games revenue in the coming quarters? Thank you.
Alicia, perhaps I'll seek to address that question. We believe there's ample room for revenue growth for the mobile game industry in China. Today there's more than twice as many people playing mobile games as PC games each day, but both for the industry as a whole and for Tencent specifically within the industry. Recently there's been some examples, including a very popular game from NetEase, including our own shooting game, of titles that can both monetize to relatively healthy levels and enjoy relatively long use lives.
We believe that the China mobile game industry is becoming more like the U.S., European, Japanese or Korean mobile game industries, where not only do you have very casual games with long life and more mid-core games with short life, but also you have hit mid-core games that can really redefine their genres and generate substantial revenue over extended periods of time. In recent months, we've been following the evolution of the industry with great interest. We've seen some challenges, but we also think therein lie opportunities. That's really behind the strategic shift that I outlined earlier, that within the Red Ocean categories, we're focusing on more resources on fewer titles that we believe can not only participate in a genre, but also potentially redefine the genre.
In the Blue Ocean categories, we're focused on developing new game experiences that currently don't exist in China, and so even training people to play mobile games in a way that they haven't before. We'll see what happens going forward. If you look at the App Store rankings today, for example, you can see that some of our new titles, for example, King of Fighters or Legend of Mir 2, fit squarely within that criteria of being mid-core games with a great user experience, where we're cautiously optimistic that they'll enjoy a healthy longevity.
Okay.
Next question please.
Thank you. Your next question comes from the line of Wendy Huang from Macquarie. Please ask your questions.
Thank you. Congratulations on the solid results and also the breakthrough you made on the different mobile products. My first question is about mobile games. Are you seeing any new technologies such as HTML5 to actually revolutionize the mobile game industry in the near future, and also to bring the monetization opportunity for Tencent? Second, your margin record very high level in the past three years. Is this kind of high margin sustainable for the rest of the year? Thank you.
Okay. On the game question, I'll answer that. I think at this point in time, we look at sort of native apps as sort of the best technology for mobile games. I think there are a lot of industry participants, and we ourselves are actually sort of testing out HTML5 as a platform for games and try to see sort of whether there are more casual games that could actually fit into that category. If this technology becomes an important technology for games, I think we are very, very well-positioned in that segment. In fact, we wish there's a big market for that segment because as we went through in our strategic highlight, we have a very strong browser app right now on a standalone basis, which is leading in terms of the market.
At the same time, we actually have even bigger traffic on our HTML5 Tencent browsing service, in terms of page views, in terms of active users. If there are games which actually fit into this technology platform, which we believe there will be, but whether how big it is, it's a question mark. When it becomes very big, then we will be a major beneficiary of that technology shift.
Just on the margin outlook. First, as you know, we generally don't comment on margin outlook going forward. My answer to the question will be consciously vague. Second, in terms of specific cost items, our cost of revenue is experiencing some weight, and will experience some weight going forward from items such as exclusive content payments, for example, for NBA rights, and also for the support for our online payment business, where we have to incur the interbank handling fees. Thirdly, I would say that by global standards, our margins are fairly comparable to those of global peers. It's important to bear in mind that our margins don't bear the cost of margin-destructive O2O experiences, O2O activities, because we've adopted a strategy where, generally speaking those O2O activities and the financing around them takes place at our partner company level rather than at the consolidated Tencent level.
Thank you.
Next question please.
Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your questions.
Eddie, can you hear us? Perhaps we'll go to the next question.
Next one please, operator.
Thank you. Your next question comes from the line of Cynthia Meng from Jefferies. Please ask your questions.
Hi, everyone. Thank you for giving me the opportunity. I have two questions. First one is on the advertising. Currently, Tencent doesn't participate in the revenue sharing on mobile Guangdian Tong. Is this the revenue share to advertisers reported on the cost of goods sold line? Does Tencent have any near term or a midterm plan of participating in doing so? I have a second question on online travel. We noticed that you submitted a going private proposal to Elong recently. I just wonder if management can share some of your overarching strategy behind online travel, and how does that feed into Tencent's overall O2O footprint? Given that Baidu and Alibaba are both quite aggressive in O2O, if you can talk about your O2O strategy as well, that would be great. Thank you.
Actually, for the on our official account, we share revenue with the content providers, and the sharing would be included under COGS.
Right. In terms of online travel, we look at it as an important, well, as attractive vertical. It's not the biggest contribution in terms of frequency of payment. It's an attractive business in itself. We have some participation in the sector. As you can see, we have invested in a number of different companies, including Elong, including 17U. A number of these companies actually coincidentally also have investments from Ctrip. I think overall, we look at Elong as an attractive business going forward, because it does have a pretty good exposure to the hotel segment. We feel that in the public arena, it has to make continuous investment, that's why the share price are very suppressed. If we can actually take it private, we can actually invest in the company and really make it a more viable business.
Over time, we may actually list it in the Asia market in the future. That's undecided at this point in time. Overall, we feel that our various investments in the travel segment as well as our partnership with Ctrip at different levels give us pretty good exposure to a good vertical business. In terms of our O2O initiative, we do focus a lot on the high-frequency O2O services. We have a number of different investments, including investment in DiDi, Kuaidi, including our investment in Dianping, including our investment in Ele.me, and a number of other investments too. As James talked about, we feel that these O2O services, on one hand, requires some traffic. On the other hand, requires actually a lot of offline exposure, and the ability to manage a very large sales force in particular.
These are not the kind of expertise that we, as a technology company and user experience company, is very good at managing. What we have decided on a strategic basis is really working with a number of best-of-breed partners and help them to generate the online exposure while they actually focus on building out on their offline expertise. At the same time, as James has said, this not only give us exposure to the best team in the industry with a lot of focus, it also allows us to leverage our capital in a more efficient basis, because we don't necessarily need to spend all the money that these companies are going to lose in the process of building up market leadership. As you know, all these companies are actually generating pretty heavy subsidies and losses at this point in time.
Thank you. Your next question comes from the line of Natalie Wu from CICC. Please ask your questions.
Hi. Good evening, management. Thank you for taking my question.
Can you speak up a little bit, please?
Okay. Can you hear me?
Thank you. Yep.
I have two questions, actually. The first is, congratulations on the strong performance in your online advertising business. Can you elaborate a little bit more about your advertising revenue? You mentioned that CNY 2 billion was generated from brand ads. I'm just wondering how much is contributed from online video. Also, for performance-based ad, what is the mobile revenue contribution? The second question is actually on your deferred revenue. If we look at your deferred revenue in current liability line, there is actually a CNY 1 billion decline from last quarter's level. Just wondering, can you share with us what is the major cause for this sequential change? I would appreciate it if you could just break down these effects from maybe gain and advertising business. Thank you.
Why don't I handle the advertising question, and then John will look after the deferred revenue question. We can follow up with a detailed analysis offline, but given that the rapid growth in our video business, video would be the largest portion now, the largest contributor to our brand display, which I think was your first advertising question. Then for your second advertising question on the Performance advertising, mobile would be the very large majority at this point. It is primarily a mobile business or essentially a mobile business.
In respect of the deferred revenue, actually this quarter it increased by about 6.3%. There are two reasons for that. Number 1 is, in terms of the business cooperation agreement of Jingdong, every quarter there will be a natural decrease of more than CNY 200 million. Secondly, you can see that this quarter is a lower season for online games, which in 2014, it was the same case, and at that time it decreased by about 3% quarter-on-quarter.
Next question.
Thank you. Thanks. Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your questions.
Good evening, Thanks for taking my questions. I have two questions. First question is on the premium content subscriptions. Wonder if you can give some updates on how Tencent is progressing across different videos also some of the music reading content subscription, Wonder is the number is also included in the fee-based VAS purchase subscription line as well?
Sure. Yes, it's included inside our fee-based VAS. I think that the big picture here is that the Chinese consumer behavior is changing, That's very positive for everyone in this business, including us, Also our competitors. If you look at the U.S. today, The top 10 highest revenue apps in Apple App Store in the U.S., seven of them are games, Three of them are HBO Now, Spotify, and Pandora. In developed markets, there's a very well-established trend now toward people spending substantial time and money on premium digital content, especially on smart devices. We're just starting to see that happen in China. If you look at some of our own products, recently we've run a promotion for a Korean singer called Big Bang, That's generated millions of digital album sales in the last few weeks.
We just put online the Universal movie, "Furious 7," that will generate millions of transactions in a few days. It seems like there's a great deal of demands now emerging among consumers to pay for premium content. We're tapping into that with our digital literature business, which is the very clear industry leader. We're tapping into that with our digital music business, which is a very clear industry leader. Our digital video business, which has added millions of subscribers year to date. I don't want to give you the impression that this is all Tencent alone. We feel that both we and our competitors are together enjoying a buoyant, an increasingly substantial market for consumers paying for premium digital content.
Great. Thanks a lot, James. The next question is on internet finance. I think company started some of the small lending program, maybe back in May, June timeframe. I wonder how is that progressing along and any kind of color you can share with us. Thank you.
Our WeBank launched a product called WeLoan, which is a consumer loan on a very convenient basis. We have actually launched it on the basis of a whitelist. We go through the list of users within Mobile QQ at this point in time, and basically sort of leveraging on our credit model, identify a certain number of users and then sort of we're going to offer them an entry point to these credit product and see what the response is. I think, at this point in time, it's still on trial. We have put in a small number of users into this program. So far, I think the result is encouraging, I would say, both in terms of for the people that we have shown the entry point, the adoption of these loans, as well as when we look at the credit model.
Far with limited data, of course, we feel pretty good about the credit model that we have at this point in time. Obviously, in the next few months, we'll gradually roll it out to a larger number of users within Mobile QQ. Over time, we'll also launch this product on the Weixin as well. By that time, we'll be able to give you much more color on how this product is faring. So far, I think so good.
Okay. Thank you. Next question, please. Thank you. Your next question comes from the line of Erica Wu from UBS. Please ask your questions.
Thank you. My first question is on Moments advertising. I think James mentioned that you ran about 60 advertisements in second quarter. Can you share just how significant was the revenue contribution for second quarter? If we look at that run rate on a 12-month basis, how significant can Moments advertising be? My second question is on selling expenses. That amount was down 19% year-on-year, and one of the reasons cited was WeChat marketing. Were you being more selective in your global expansion of WeChat? Thank you.
On the first question about advertising inside Weixin Moments, I'd say it was a contributor to our performance advertising business in the second quarter, but given it's still very early stage, a substantially smaller contributor than advertising on Mobile Qzone or advertising on Weixin official accounts as just comparison points. Over the long term, we think that it has the potential to be one of the largest products within our mobile performance advertising portfolio because it enjoys enormous traffic, it enjoys relatively affluent users who are disproportionately appealing to advertisers. Therefore we believe it can tap into not only the kind of hardcore performance advertisers such as e-commerce companies and app developers, but also the brand performance advertisers. We're already seeing that with very good response from luxury goods advertisers or automobile advertisers to participate in Weixin Moments.
It's a long path ahead, but we're very optimistic about the destination for Weixin Moments advertising.
In respect of the selling and marketing expenses growth year-on-year, it was mainly due to the significant reduction in subsidies for taxi hailing apps, DiDi Dache, as well as a little bit of a reduction in the WeChat overseas marketing expenses.
Okay. Thank you very much. Next question, please.
The next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your questions.
Apologize, bad connection. Two questions. The first one is about mobile games. I'm wondering if James could talk a little bit about you guys' view on the future of overseas mobile games in China. It seems like we haven't seen too many successful overseas games in China. Traditionally, we all know Tencent has an advantage in licensing overseas games in China. Just wondering what's your thought on that. Then secondly, perhaps something more long term. Could you guys give us any updates on the so-called social commerce within your ecosystem? We have heard certain anecdotal data points that the growth has been pretty good. Just wondering if any more color on these pieces. Thanks.
Yeah. With regard to the success or lack thereof of overseas mobile games inside the China mobile game market, I think that's a fair observation. If you look at Southeast Asia or India, the correlation between the top mobile games in those markets and the top mobile games in the U.S. and Europe is about 75%. If you look at China, the correlation is about 20%. For a number of reasons, including local taste, localization, publishing, and so forth, so far the Chinese mobile game market has evolved relatively independently from the rest of the world, with a couple of high-profile exceptions, such as Clash of Clans. Our belief is that over time, as the Chinese mobile game audience becomes more sophisticated and as foreign games are better localized to suit Chinese tastes, then there will be an increase in the success of overseas games in China.
We've certainly tried to position ourselves for that trend. We've partnered with and made investments in some of the biggest and best mobile game companies in Korea, where we have a relationship with CJ Games, for example, in Europe, with Miniclip, in the U.S., with Glu, in Japan, and so forth. We have a number of international games, both from third parties and from our partners, which we're looking forward to releasing in China. As of today, the Chinese mobile game market is still in a 75% local game market. That hasn't hurt us so far. I'd emphasize that most all of our biggest and most successful mobile games historically have been mobile games developed by our in-house studios, such as TianTian Kupao or such as Quanmin Tuji.
Yeah, in terms of social commerce right now, I think at this point in time, it's still at a very primitive stage of growth. We do see quite a bit of action that's happening within our social network, and we do see one of our investee companies like Koudai has seen pretty good traction in terms of their growth. I feel that overall, we're still in a trial mode in terms of how can we really catalyze more growth of social commerce. I think there are certain elements that's needed. One is actually payment, the other one is advertising. For example, other ways for people to discover about these shops, these sellers. Also, the supply chain of good products is actually important. I think at this point in time, it's more like a grassroots effort.
Over time, as we continue to build up our own payment system, as advertising continue to grow within our ecosystem, we provide different ways to capitalize the discovery of these products. As more and more good sellers actually start to use this channel, I think there could be more growth. We need to sort of keep trying. I think, if you look across the ocean, Facebook has been trying quite a bit in terms of figuring out what would be a good way to capitalize commerce on their platform as well. I think we're in the experiment and learning mode in terms of doing this. We're also building a lot of the infrastructural core elements to support this.
Okay. Thank you. Operator, in the interest of time, we'll take the last three questions, please.
Thank you. Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your questions.
Thank you very much. Forgive me if you mentioned this already, what is the current number of official accounts on Weixin? How many do we now have on Mobile QQ? I'm also curious as to what the timeline might be for launching official accounts-based ads on Mobile QQ. My second question relates to the appreciable sequential improvement in advertising growth margin in the second quarter. I assume it's largely the interplay of P for Q margins, which are very high, but also content spend on video, which is consequential to the fate of margins. The question is: Is content spend growth likely to continue to fade significantly relative to overall ad revenue growth, given current marketing conditions? Thank you.
Well, in terms of official accounts, I would say we have continued to see a healthy growth in terms of the total number of official accounts on WeChat, on Weixin, as well as sort of the number of active official accounts and the number of page views and the number of articles that these official accounts sent out. All in all, the trend has been quite nice. In terms of ballpark figures, we have more than 10 million official accounts registered, and on an active basis, a couple million active. In terms of Mobile QQ, we are creating a whole infrastructure for supporting official accounts too. That will be launched in the next couple of months. We expect that could also sort of generate additional traffic on our official account.
With regards to advertising gross margins, you're correct that the increase reflects a combination of positive seasonality and the mix shift toward the performance advertising, which tends to be higher gross margin all else equal. With regard to content costs, our experience historically is that when we buy excellent content exclusively, such as The Voice of China program or the Game of Thrones series, that content combined with our platform strengths, combined with our distribution through Weixin and so forth, can deliver a surge to our video traffic, to our video advertising, and to more naturally also to our video subscription revenue. Given those very positive experiences, we continue to reinvest very aggressively in video content.
We've mentioned numerous times that our video advertising revenue more than doubling year-on-year, you should assume that as our revenue grows, our content will grow at not exactly the same rate, but at a relatively rapid rate as well, because we find that buying the best content delivers the biggest and most successful results for us.
Thank you.
Thank you. Next question please.
Your next question comes from the line of Thomas Chong from Citigroup. Please ask your questions.
Hi. Thanks for taking my questions. I have two questions. The first question is about the macro headwinds. Can management comment about how it impacts the brand advertising business? My second question is about the M&A strategy. What other verticals would Tencent be interested to invest in the future? Thanks.
Well, in terms of macro headwind, I think we don't really feel it that much. I think you have identified sort of among our entire business, probably sort of the only thing that's exposed to it is actually our branded advertising, which actually sort of is relatively small compared to our total revenue. At the same time, within the branded advertising, a big part of it is actually video advertising, which is on a secular or structural growth mode. I think the macro headwind is not felt that much at Tencent at this point in time. In terms of M&A, as we said, in the past, we focus on acquiring stakes in companies that would enhance our overall ecosystem and at the same time, these are management who have proven track record and have a similar culture with us.
I think these are the criteria for our investment and with the rollout of Internet Plus strategy, with internet actually approaching different verticals within the economy, I think there are actually more opportunities for us to find ourselves being at the crossroad with a partner. If our technology, if our ecosystem, if our user base is actually helpful to help companies to make use of internet to capture opportunities, I think we will be happy to do that. I think that's in broad general terms, what we are looking for.
Thanks.
Yeah, thank you. The last question, please.
Thank you. Your next question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your questions.
Thank you. Could you talk about the net revenues that you earned in mobile games in the quarter, as well as the new genres of games that you'll be launching in the coming months. How soon can we see that breadth improve? That's the first question. Second, on WeBank and the strategy, will you remain focused on microloans or should we expect WeBank to evolve into a platform potentially supporting all but the top five banks? Thank you.
Piyush, on the first question, we can go into net revenue versus gross revenue offline because it's a fairly technical discussion. I think with regards to the new genres of games, it's a combination of a new approach of putting more resources behind key titles within the existing Red Ocean genres, then developing and publishing what we hope will be big transformative games in Blue Ocean genres, which have not yet formed in China, but which we hope to form. You should expect that to be a kind of gradual but continual process. If you look, in recent weeks, we've already released two mobile games, that are more sort of Red Ocean in nature that seem to be successful. One being King of Fighters, another one being Legend of Mir, that are based on proven IP.
One trend that's become very apparent in the first half of this year, whether you look at NetEase's Fantasy Westward Journey game in China or the Fallout Shelter game in the U.S., is that PC gamers who in the past treated mobile games the way that someone who reads novels might treat a comic book adaption, are now taking mobile games much more seriously and are much more willing to play mobile games that are tied into PC games. We've already released a couple of titles on mobile that are linked to PC, and going forward, we'll seek to attack both these Red Ocean and Blue Ocean categories progressively.
Yeah, I would just add one more point to James' discussion about our own strategy. I think, if you look at PC platform, we actually have spent many years in terms of developing the best traffic paths for bringing traffic into games. I think the same exercise needs to be done for our mobile platforms. If you look at the first inning of that effort was really creating these game centers. I think, that's just the first part of the story, right? We arguably have a much bigger franchise on mobile internet than we had on PC internet. As a result, there are actually a lot of venues through which we can actually generate traffic for our games. I think some of the things that James talked about, for example, cross-promoting our content with the games, so video platform can be brought to bear.
For example, we can actually leverage music to bring traffic to music games. There are a lot of our existing platforms which have not really participated in our game initiative yet. It would take time for us to build that, but over time, they will be built. In terms of our internet finance, and WeBank initiative, I think WeBank as we constantly say, WeBank wants to be a provider of products that actually can bring value to consumers, as well as to its partner banks. WeBank is not just a bank, but really an open platform for banks to access users and provide better services to users. I think Weilidai is one of these products, but we'll continue to develop good products along these lines.
For example, making loans to state-owned enterprises or large corporates is not really something that's along the lines, so we probably refrain from doing that for some time.
Yep. Thank you very much for joining the call. Thank you, operator. We're rounding up the call now. If you wish to check 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.
Thank you. That does conclude our conference for today. Thank you for participating. Tencent Holdings Limited 2015 second quarter and interim results announcement conference call. You may all disconnect now.