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Cautionary note This presentation may contain forward-looking statements relating to the forecasts, targets, outlook, estimates of financial performance, opportunities, challenges, business developments, business plans and growth strategies of Tencent Holdings Limited (the Company or Tencent ) and its group companies. These forward-looking statements are based on information currently available to Tencent and are stated here on the basis of the outlook at the time that this presentation was produced. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. The forward-looking statements may prove to be incorrect and may not be realized in the future. Underlying the forward-looking statements are a large number of risks and uncertainties. Therefore you should not rely on any of these forward-looking statements. Please see our various other public disclosure documents for a detailed discussion of those risks and uncertainties. This presentation also contains some unaudited non-gaap financial measures which should be considered in addition to, but not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-gaap financial measures may be defined differently from similar terms used by other companies. The Company's management believes that the non-gaap financial measures provide investors with useful supplementary information to assess the performance of the Company s core operations by excluding certain non-cash items and certain impact of acquisitions. For further explanation of our non-gaap measures and reconciliations between our GAAP and non-gaap results, please refer to our earnings announcement. In addition, information relating to other companies and the market in general presented in these materials has been obtained from publicly available information and other sources. The accuracy and appropriateness of that information has not been verified by Tencent and cannot be guaranteed. The reporting currency of the company is Renminbi. For the purpose of this presentation, all figures quoted in US dollars are based on the exchange rate of US$1 to RMB6.2881 for 1Q2018. 2
Overview Business Review Financials Q&A
Financial Highlights in billion RMB 1Q2018 1Q2017 YoY 4Q2017 QoQ Total Revenue 73.5 49.6 +48% 66.4 +11% Value Added Services 46.9 35.1 +34% 39.9 +17% Social Networks 18.1 12.3 +47% 15.6 +16% Online Games 28.8 22.8 +26% 24.3 +18% Online Advertising 10.7 6.9 +55% 12.4-14% Media 3.3 2.5 +31% 4.1-20% Social and Others 7.4 4.4 +69% 8.3-10% Others 15.9 7.6 +111% 14.1 +13% Gross Profit 37.0 25.4 +46% 31.5 +18% Operating Profit 30.7 19.3 +59% 25.7 +19% Net Profit to Shareholders 23.3 14.5 +61% 20.8 +12% Non-GAAP* Operating Profit 25.3 18.5 +36% 21.9 +16% Operating Margin 34.4% 37.4% -3.0 ppt 32.9% +1.5 ppt Net Profit to Shareholders 18.3 14.2 +29% 17.5 +5% * Please refer to slide 18 for details of non-gaap adjustments 4
Key Platforms Update Online Games Platform #1 on PC and smart phone in China #1 online games company globally by revenue Weixin & WeChat #1 smart phone community MAU at 1,040m QQ & Qzone QQ smart devices MAU of 694m (1) Qzone smart devices MAU of 550m Online Games Communications & Social Utilities Media Fintech Video #1 by mobile DAU and subscriptions News #1 portfolio of news services by MAU Music #1 music services platform Literature #1 online content library and publishing platform Mobile Payment #1 by MAU and DAU App Store #1 by MAU Mobile Security #1 by MAU Mobile Browser #1 by MAU All above rankings refer to China market, unless otherwise stated. Company data as of 31 March 2018 1. Includes users who logged in and sent a message or participated in certain activities such as QQ Moments, games, Interest Tribes, live broadcast, online music & literature 5
Overview Business Review Financials Q&A
Business Review 22% 18% 21% 17% 15% 18% 15% 12% 14% 10% 19% 7% 19% 5% 18% 15% 4% 19% 42% 46% 5% 4% 19% 12% 17% 42% 45% 48% 53% 53% 54% 59% 56% 24% 23% 23% 23% 25% 24% 24% 24% 25% 23% 17% 19% 41% 37% 24% 23% 14% 39% 25% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Social Networks Online Games Online Advertising Others 7
Value Added Services +34% YoY +17% QoQ 46.9 46.9 35.1 12.3 +47% 18.1 39.9 15.6 +16% 18.1 22.8 +26% 28.8 24.3 +18% 28.8 1Q17 1Q18 4Q17 1Q18 Social Networks Online Games (in billions, RMB) Social Networks YoY revenue growth due to exclusive video content offerings driving video subscription revenue up 85% YoY, increase in paying users for music live broadcast services QoQ revenue growth boosted by game-related items sales, video subscriptions and monetization of WeSing Total VAS subscriptions up 24% YoY to 147 million primarily due to digital content subscription services Online Games YoY growth driven by in-house mobile titles such as HoK and QQ Speed Mobile. PC games revenue was flat due to users time shift to mobile QoQ growth boosted by seasonality and new mobile titles, QQ Speed Mobile and MU Awakening Achieved global industry leadership in high-growth tactical tournament genre 8
Social Networks Mini Games Over 500 Mini Games developed inhouse and by 3 rd parties Facilitate discovery of game apps - over 1/3 of Mini Game players not previously players of Tencent mobile game apps Educate users to increasingly adopt Mini Programs for other use cases Started light monetization via advertisement and virtual items sales Scan-to-Buy Introduced Scan-to-Buy solution to cater to a broad range of retailers Allow customers to skip the checkout queue, boosting transaction efficiency during peak hours Supermarkets among early adopters In-house developed, Jump Jump 3 rd -party-developed, Pirate is Coming Activate Mini Program Scan product QR code to add to shopping cart Use Weixin Pay to check out 9
Social Networks QQ KanDian DAU exceeded 80 million Enhanced recommendation for short videos, driving video views up 300% YoY Monetization at early stage, upside potential given advertisers demand for feeds ad inventory WeiShi A mini video app to serve users entertainment needs Leverage our licensed digital content libraries music, games, sports, variety shows Provide professional-user-generated content (PUGC) videos across our media feed verticals, such as KanDian and Mobile QQ Browser New algorithm enhanced video sharing Advertisement in KanDian feed Content shared by friends and from Interest Tribes Licensed content from Tencent Video WeiShi video shown within KanDian 10
Global Leadership in Tactical Tournament Genre Explosive user growth Strong presence across PC, mobile and console Multiple titles created and published by in-house studios, investees and partners 2 in-house developed mobile titles enjoy break-out success Rapid user growth domestically and internationally global version started initial monetization Success due to cooperation with IP owner, industry-leading development capability and platform strength Delay in China monetization and heavy marketing expenses to impact financials in short term Epic s Fortnite creates a global phenomenon #1 Most watched game on Twitch Robust monetization via seasonal battle passes Launched ios mobile version in March, soon jumped to #1 in US Top Grossing Chart In China, PC version started pre-registration Licensed PUBG PC in the pipeline One of the top-selling titles on Steam Pending government approval in China Aim to improve localization for China 11
Smart Phone Games 1Q18: RMB21.7 billion revenue, up 68% YoY, up 28% QoQ Higher DAU, paying ratio and ARPU drove YoY revenue growth Seasonal promotional activities and QQ Speed Mobile contributed to sequential growth in 1Q; however, platform focus on non-monetized tactical tournament games may impact short-term revenue Honour of Kings #1 in China s ios Top Grossing Chart* DAU up double digits YoY Stable paying ratio, strong ARPU growth, revenue up strongly YoY Testing new play mode and content QQ Speed Mobile #2 in China s ios Top Grossing Chart* Successfully migrate in-house IP from PC to mobile and expand audience Over 40% of mobile users are new to IP; DAU of mobile version 7x that of legacy PC version** *Source: AppAnnie, China for 1Q2018 ** Average DAU for mobile version during 1Q18. Average DAU for the legacy PC version during historical peak quarter 12
PC Client Games 1Q18: RMB14.1 billion revenue, flat YoY, up 10% QoQ Active users declined YoY due to continued shift to mobile; core user engagement remains stable Content updates and CNY marketing activities contributed to sequential revenue growth DnF, which is preparing for the 10th anniversary of its China launch in June, delivered record quarterly revenue in 1Q18, demonstrating our capability to manage franchises for the long term New games/initiatives Tactical Tournament Fortnite PC version started preregistration in April PUBG PC version pending approval Sports Upgraded versions for football and basketball games Sandbox 3 licensed sandbox games in the pipeline Promotion Deepening cooperation with live broadcast platforms, such as Douyu and Huya 13
Online Advertising +55% YoY -14% QoQ 6.9 2.5 4.4 +31% +69% 10.7 3.3 7.4 12.4 4.1 8.3-20% -10% 10.7 3.3 7.4 1Q17 1Q18 4Q17 1Q18 Media Social and Others (in billions, RMB) Media Revenue increased YoY, primarily driven by video revenue growth Video ad revenue rose 64% YoY due to more pre-roll ads benefiting from growing video views and new ad formats within original productions Video and news ad revenue decreased QoQ due to low season in 1Q Social and Others Revenue increased YoY due to expanded advertiser base boosting fill rates in Weixin Moments, and higher CPC for Mobile Ad Network Revenue declined QoQ in low season; QQ KanDian revenue increased due to fast growth in traffic Long runway for continued growth given current ad load only a fraction of industry benchmarks: Social: Weixin Moments increases to 2 ads/ user day Feeds: rapid traffic growth provides room for inventory expansion 14
15 Reinforced Leadership in Online Video Strong Growth in Performance Metrics #1 online video platform by mobile DAU and subscriptions Mobile daily video views (VV) increased over 60% YoY, driven by self-commissioned and licensed content Total video revenue up 75% YoY Subscription revenue up 85% YoY Advertising revenue up 64% YoY Proven Success in Original Content Strategy Variety Show: Produce 101 #1 online variety show to date by average VV per episode Popular IP, professional execution, strong marketing capability Accumulated over 10 million fans in Doki within 1 month Chinese Anime: Land of Warriors #1 by average VV per episode Clear vertical leadership China Literature is a rich IP resource and a strong partner for co-production, e.g. The King s Avatar, Battle Through the Heavens Movie: Forever Young A box office hit where we actively managed content creation and production Earned industry recognition domestically and Internationally; selected as the opening film in the Chinese Cinema Festival in France
Overview Business Review Financials Q&A
Income Statement in million RMB 1Q2018 1Q2017 YoY 4Q2017 QoQ Revenues 73,528 49,552 +48% 66,392 +11% COPS (36,486) (24,109) +51% (34,897) +5% Gross profit 37,042 25,443 +46% 31,495 +18% Interest income 1,065 808 +32% 1,156-8% Other gains, net 7,585 3,191 +138% 7,906-4% Operating expenses (15,000) (10,170) +47% (14,833) +1% Operating profit 30,692 19,272 +59% 25,724 +19% Finance costs, net (654) (691) -5% (859) -24% Share of profit/loss of associates & JV (319) (375) -15% (120) +166% Income tax expense (5,746) (3,658) +57% (3,123) +84% Net profit 23,973 14,548 +65% 21,622 +11% Net profit to shareholders 23,290 14,476 +61% 20,797 +12% Diluted EPS in RMB 2.435 1.522 +60% 2.177 +12% Non-GAAP: Net profit to shareholders 18,313 14,211 +29% 17,454 +5% Diluted EPS in RMB 1.915 1.494 +28% 1.827 +5% 17
Non-GAAP Adjustments in million RMB GAAP 1Q2018 SBC Net (gains)/ losses from investee companies* Amortisation of intangible assets Impairment provision** Non-GAAP 1Q2018 YoY change QoQ change Operating profit 30,692 1,632 (7,788) 100 636 25,272 +36% +16% Net profit 23,973 1,682 (7,765) 531 709 19,130 +33% +4% Net profit to shareholders 23,290 1,585 (7,766) 495 709 18,313 +29% +5% Operating margin 41.7% 34.4% -3.0 ppt +1.5 ppt Net margin 32.6% 26.0% -3.0 ppt -1.7 ppt * Including (gains) /losses on deemed disposals, disposals of investee companies and businesses, and fair value changes arising from investments ** Impairment provision for associates, joint ventures, AFS and intangible assets arising from acquisition 18
Segment Gross Margin VAS (%) 65.3 66.2 64.2 63.7 65.6 66.7 65.2 63.2 60.9 60.6 59.9 59.3 63.3 Online Advertising (%) 39.0 51.9 48.9 51.3 43.7 45.3 36.3 46.6 34.8 37.8 36.3 37.2 31.2 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Others (%) 18.1 20.4 21.9 22.4 20.3 22.8 25.4 7.0 10.6 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 19
Operating Expenses S&M (in billion RMB) 5.6 6.0 5.6 3.2 +76% YoY -8% QoQ 1Q17 1Q18 4Q17 1Q18 R&D (in billion RMB) 3.6 5.0 4.8 5.0 +39% YoY +5% QoQ 1Q17 1Q18 4Q17 1Q18 G&A excl. R&D (in billion RMB) 3.4 4.4 4.0 4.4 +30% YoY +10% QoQ 1Q17 1Q18 4Q17 1Q18 20
Margin Ratios 60.0 61.6 58.6 58.4 58.1 57.3 54.0 53.9 51.3 50.0 48.6 47.4 50.4 GAAP Gross Margin (%) 42.0 44.0 39.5 37.9 42.1 41.2 37.2 34.1 37.4 35.4 33.1 32.9 34.4 Non-GAAP Operating Margin (%) 32.6 34.5 31.8 29.6 31.7 32.2 29.5 28.3 29.0 29.1 26.3 27.7 26.0 Non-GAAP Net Margin (%) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 21
CAPEX, Free Cash Flow in million RMB 1Q2018 1Q2017 YoY 4Q2017 QoQ Operating CAPEX 3,877 1,713 +126% 3,848 Flat Non-operating CAPEX 2,441 395 +518% 1,127 +117% Total CAPEX 6,318 2,108 +200% 4,975 +27% Operating Cash Flow 19,825 26,614-26% 28,594-31% Less: CAPEX Paid 6,825 2,385 +186% 4,424 +54% Free Cash Flow 13,000 24,229-46% 24,170-46% Total Cash 142,526 141,856 Flat 148,237-4% Less: Total Debt 157,059 114,284 +37% 131,905 +19% Net Cash / (Net Debt) (14,533) 27,572 N.A. 16,332 N.A. Fair market value of our listed investee companies was approximately RMB 213 billion* (USD 33.9 billion) as at March 31, 2018 * Excluding subsidiaries 22
Overview Business Review Financials Q&A
Tencent Holdings Ltd. 2018 First Quarter Results Presentation Thank you! https://www.tencent.com/ir 2 4