Tencent Announces 2020 Third Quarter Results

HONG KONG,Nov. 12,2020 --Tencent Holdings Limited ("Tencent" or the "Company",00700.HK),a leading provider of Internet value added services in China,today announced the unaudited consolidated results for the third quarter ("3Q2020") ended September 30,2020.

3Q2020 Key Highlights

Revenues: +29% YoY,non-IFRS[1] profit attributable to equity holders of the Company: +32% YoY

Total revenues were RMB125,447 million (USD18,421 million[2]),an increase of 29% over the third quarter of 2019 ("YoY").

On a non-IFRS basis,which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profitwas RMB38,116 million (USD5,597million),an increase of 34%YoY. Operating margin increased to 30% from 29% last year.

- Profit for the periodwas RMB33,325million (USD4,893 million),an increase of 33%YoY. Net margin increased to 27% from 26% last year.

- Profit attributable to equity holders of the Companyfor the quarter was RMB32,303million (USD4,743million),an increase of 32% YoY.

- Basic earnings per sharewere RMB3.402. Diluted earnings per share were RMB3.314.

On an IFRS basis:

- Operating profit was RMB43,953 million (USD6,454 million),an increase of 70% YoY. Operating margin increased to 35% from 27% last year.

- Profit for the period was RMB38,899 million (USD5,712 million),an increase of85% YoY. Net margin increased to 31% from 22% last year.

- Profitattributable to equity holders of the Companyfor the quarter was RMB38,542 million(USD5,660 million),an increaseof89%YoY.

- Basic earnings per share were RMB4.059. Diluted earnings per share were RMB3.964.

Total cash were RMB265,892 million (USD39,044 million) at the end of the quarter.

[1]Non-IFRS adjustments (formerly referred as non-GAAP) excludes share-based compensation,M&A related impact such asnet (gains)/losses from investee companies,amortisation of intangible assets and impairment provision/(reversals),as well as income tax effects.

[2]Figures stated in USD are based on USD1 to RMB6.8101

Mr. Ma Huateng,Chairman and CEO of Tencent,said,"This quarter marked the second anniversary of our strategic organisation upgrade,which was intended to enhance our strength in Consumer Internet and extend our presence to Industrial Internet. While the upgrade was designed to bear fruit over the longer run,we are already seeing initial benefits in areas such as consolidating our advertising services,rejuvenating our product and content platforms,growing our cloud and SaaS businesses and building an internal open source code base. In the face of public health,macroeconomic,and geopolitical challenges,we will seek to sharpen our focus,innovate,and collaborate with our partners in order to better serve our users,customers and the society at large."

3Q2020 Financial Review

Revenues from VAS increased by 38% to RMB69,802 million for the third quarter of 2020 on a year-on-year basis. Online games revenues grew by 45% to RMB41,422 million. The increase was primarily due to revenue growth of our smart phone games,including domestic titles such as Peacekeeper Elite and Honour of Kings,as well as overseas titles. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) were RMB39,173 million and PC client games revenues were RMB11,631 million for the third quarter of 2020. Social networks revenues increased by 29% to RMB28,380 million. The increase reflected contributions from digital content services including HUYA's live streaming service,our video subscription service,and our music subscription service,aswell as from in-game virtual item sales.

Revenues from Online Advertising increased by 16% to RMB21,351 million for the third quarter of 2020 on a year-on-year basis,benefitting from wider adoption of our algorithmic advertisement buying solutions,as well as rapid demand growth from categories such as education,Internet services and eCommerce platforms,and recovered demand from sectors such as real estate and automobiles. Social and others advertising revenues grew by 21% to RMB17,752 million. The increase was primarily driven by higher revenues flowing from Weixin Moments due to increased inventories and eCPMs,and our mobile advertising network revenue growth on higher eCPMs as advertisers responded favorably to our video ad formats. Media advertising revenues decreased 1% to RMB3,599 million. The slower decline versus prior quarters benefitted from key Tencent Video content releases,as well as inventory and impression growth from our music platforms.

Revenues from FinTech and Business Services increased by 24% to RMB33,255 million for the third quarter of 2020 on a year-on-year basis. The increase was mainly due to higher revenues from commercial payment and wealth management,while our Business Services revenue growth slowed downdue to lingering impact from the pandemic on project development and new contract sign-ups,as well as non-recurring adjustments to certain IaaS contracts.

Other Key Financial Information for 3Q2020

EBITDA was RMB45,055 million,up 27% YoY. Adjusted EBITDA was RMB47,849 million,up 26% YoY.

Capital expenditures wereRMB8,684 million,up 31% YoY.

Free cash flow*was RMB28,127 million,stable YoY.

As at September 30,2020,net cash position totalled RMB6,363 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB890,730 million,compared to RMB726,244 million as at June 30,2020.

* Starting from 2020,free cash flow was adjusted by subtracting payments for media content and lease liabilities,in addition to subtracting payments for capital expenditure from the operating cash flow. Restated free cash flow was RMB16.8 billion in 1Q2019,RMB12.6 billion in 2Q2019,RMB28.1 billion in 3Q2019,and RMB31.3 billion in 4Q2019,respectively.

Operating Metrics

As at

30September

2020

As at

30September

2019

Year-

on-year

change

As at

30June

2020

Quarter-on-

quarter

change

(in millions,unless specified)

Combined MAU of Weixin and

WeChat

1,212.8

1,151.0

5.4%

1,206.1

0.6%

Smart device MAU of QQ

617.4

653.4

-5.5%

647.6

-4.7%

Fee-based VAS registered

subscriptions

213.4

170.6

25.1%

203.4

4.9%

Business Review and Outlook

Communication and Social

For Weixin,we are facilitating more convenient access to high frequency services within the Weixin Pay interface by regrouping such services into four verticals,namely Financial Services,Daily Services,Travel & Transportation,and Shopping & Entertainment. For the Travel & Transportation vertical,we connect automobile owners with a range of car services,such as car wash and car insurance,as well as general users with public transportation services,such as transit codes and bus schedules. We have now extended these mobility services to ten provinces and municipalities in China. We are also enhancing the efficiency of content and service discovery via cross-referencing within Weixin properties,so that users can press-to-search words and phrases that appear in chat boxes and find content and services from Mini Programs,Official Accounts and Moments. In Moments,contributors can create hashtags in posts,and their friends can click these hashtags and access deep-linked search results from Official Accounts,video feeds and H5 pages.

In QQ chats and groups,we enabled users to watch Tencent Video together while they are making video calls,to compete with friends via battle-mode Mini Games,and to co-edit classwork via our online collaborative tool,Tencent Docs. The launch of QQ's Mini World video and image feed service has increased QQ's appeal among the younger audience. Through Mini World,we encourage contributors to create videos and images,and share them beyond their existing friend circle. We recommend attractive content in Mini World to QQ users based on their interest graphs,enabling users to explore more content and communities. These initiatives,along with the growing demand for real-time video chatting since the onset of the pandemic,drove daily time spent per QQ user up by a teens percentage year-on-year.

Online Games

Our online game revenue increased year-on-year,driven by healthy growth in paying users in China and international markets. For smart phone games,we celebrated the fifth anniversary for Honour of Kings,which exceeded 100 million average DAU for the first ten months of 2020. Since we first released the game in 2015,we have expanded the user base of Honour of Kings through constant innovation and user-centric operations,backed up by our robust technology infrastructure. We aim to unleash the potential of this IP by rolling out two new games,an animated series and a live action drama series based on the Honour of Kings' world. While our best-known games such as Honour of Kings attract the most attention,lesser-known games also contribute to our game business' stable growth. For example,Naruto Mobile,an internally developed game based on the popular anime IP,has recently become one of the top fighting games in China with all-time high DAU and revenue,despite being first released over four years ago. This speaks to our team's success in making ongoing game enhancements,such as refining a highly popular PvP game mode. As for new games,we believe that our Moonlight Blade Mobile represents 2020's most successful launch of a new MMO role playing game in China,and our battle arena game League of Legends Wild Rift is currently among the most-downloaded mobile games across its available markets,according to AppAnnie.

We have a constructive view on PC game opportunities as the IP and influence of our major franchises remain notably robust. League of Legends released a major thematic event,"Spirit Blossom Festival",coordinating the release of new champions,new skins,and new event passes. The recent League of Legends World Championship in Shanghai attracted a sizeable audience globally. Tencent Video aired a highly-rated drama series based on our CrossFire game during the quarter,which tied into a new in-game mode and skins,reviving the game's popularity and monetisation. Valorant became a breakout hit in the tactical shooter genre and was widely watched on Twitch.

Digital Content

Our fee-based VAS subscriptions increased 25% year-on-year to 213 million,primarily driven by video and music content subscriptions. Video subscriptions expanded 20% year-on-year to 120 million. Our self-commissioned drama and animated series such as Nothing But Thirty,The Song of Glory and The Land of Warriors Season 3 have attracted additional subscribers for Tencent Video. We successfully converted trial users acquired during summer promotions to regular video subscribers. Music subscriptions grew 46% year-on-year to 52 million,due to an expanded paid content library and a higher retention rate.

Online Advertising

Following the COVID-19 outbreak,overall China advertising activity appears to have largely returned to normal conditions,albeit with a few industry exceptions lagging (for example,the travel industry),and with substantial changes in advertiser behavior (for example,toward retargeting and toward video format advertisements). We believe these changes,along with our own initiatives,have contributed to our increasing presence and relevance in China's advertising market. By category,advertising spending from sectors such as education,Internet services and eCommerce platforms experienced rapid secular growth through the pandemic,and sustained robust year-on-year growth during the quarter. Advertising spending from cyclical categories,such as automobiles and real estate,picked up year-on-year. Advertising spending from categories which dipped during the pandemic,such as financial services and consumer staples,were flattish year-on-year. Internally,we upgraded our algorithmic advertising buying solutions,delivering higher conversion rates for advertisers and attracting increased share of budgets towards our services. We also provided incremental advertising inventories in casual game apps,eSports events and live streaming platforms.

For social and others advertising,Weixin properties achieved solid revenue growth year-on-year,driven by higher impressions and eCPM. Our mobile advertising network revenue grew rapidly year-on-year as advertisers responded favorably to our video formats,such as rewarded video advertisements.

For media advertising,the rate of revenue decrease moderated to minus 1% year-on-year. We captured sponsorship advertising demand via self-commissioned variety shows such as The Coming One Season 4 and drama series such as Nothing But Thirty.

FinTech

Our FinTech revenue grew healthily at a similar rate to prior quarters,led by the continued expansion of our commercial payment and wealth management businesses,while our social payment and micro lending businesses grew at moderate rates. Our TPV increased over 30% year-on-year as commercial payment DAU and transaction value per user grew robustly year-on-year,mainly driven by our deeper penetration in offline transactions and expansion of our Mini Programs transactions in retail categories such as grocery and apparel.

The number of our wealth management customers increased over 50% year-on-year,and our aggregated customer assets expanded at a similar rate. We believe that LiCaiTong's penetration rate among our payment users is still quite low,and we are seeking to further grow our wealth management customer base at a measured rate via long-term initiatives such as investor education programs and an expanded product offering.

Cloud and Other Business Services

During the quarter,cloud and other business services revenue were affected by the lingering impact from pandemic,causing delays in project deployment and new contract sign-ups,as well as by non-recurring adjustments to certain IaaS contracts. The year-on-year revenue growth rate was therefore lower than previous quarters,which we expect to be temporary in nature.

We saw rising demand for PaaS solutions,in particular security PaaS,from financial,healthcare and Internet services clients. We also upgraded our SaaS enterprise productivity toolkit which consists of three signature products,namely WeCom (the enterprise version of Weixin),Tencent Meeting,and Tencent Docs. Customers are increasingly adopting WeCom for workplace communication,and its DAU grew over 100% year-on-year. More than 100 million users have registered for our video communication solution Tencent Meeting. In September,we released an enterprise version for Tencent Meeting,with enhanced features such as webinars,simultaneous interpretation,and connection with enterprises' existing conference room systems. We further integrated Tencent Docs,our cloud-based document processing tool,with other Tencent products,including QQ,QQ Browser and our CRM SaaS products.

For other detailed disclosure,please refer to our website http://www.tencent.com/en-us/investors.html,or follow us via Weixin Official Account (Weixin ID: Tencent_IR):

About Tencent

Tencent uses technology to enrich the lives of Internet users.

Our communication and social platforms,Weixin and QQ,connect users with each other and with digital content and services,both online and offline,making their lives more convenient. Our targeted advertising platform helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation,actively promoting the development of the Internet industry. Tencent was founded in Shenzhen,China,in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

For investor and media enquiries,please contact: IR#tencent.com

Catherine Chan

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 888369

Email: cchan#tencent.com

Wendy Huang

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 850839

Email: wendyyhuang#tencent.com

Jane Yip

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868961

Email: janeyip#tencent.com

PH Cheung

Tel: (86) 755 86013388 / (852) 3148 5100 ext. 868919

Email: phcheung#tencent.com

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS,certain additional non-IFRS financial measures (in terms of operating profit,operating margin,profit for the period,net margin,profit attributable to equity holders of the Company,basic EPS and diluted EPS),have been presented in this press release. These unaudited non-IFRS financial measures should be considered in addition to,not as a substitute for,measures of the Group's financial performance prepared in accordance with IFRS. In addition,these non-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition,non-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major associates,or estimates made by the Company's management based on available information,certain expectations,assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook,forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations,assumptions and premises,some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in future. Underlying the forward-looking statements is a lot of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

CONSOLIDATED INCOME STATEMENT

RMB in million,unless specified

Unaudited

Unaudited

3Q2020

3Q2019

3Q2020

2Q2020

Revenues

125,447

97,236

125,447

114,883

VAS

69,802

50,629

69,802

65,002

FinTech and Business Services

33,255

26,758

33,255

29,862

Online Advertising

21,351

18,366

21,552

Others

1,039

1,483

1,467

Cost of revenues

(68,800)

(54,757)

(68,800)

(61,673)

Gross profit

56,647

42,479

56,647

53,210

Gross margin

45%

44%

45%

46%

Interest income

1,864

1,674

1,749

Other gains,net

11,551

932

11,551

8,607

Selling and marketing expenses

(8,920)

(5,722)

(8,920)

(7,756)

General and administrative expenses

(17,189)

(13,536)

(17,189)

(16,499)

Operating profit

43,953

25,827

43,953

39,311

Operating margin

35%

27%

35%

34%

Finance costs,net

(1,945)

(1,747)

(1,945)

(2,005)

Shareof profit/(loss) of associates and joint ventures

2,630

234

2,630

(295)

Profit before income tax

44,638

24,314

44,638

37,011

Income tax expense

(5,739)

(3,338)

(5,739)

(4,557)

Profit for the period

38,899

20,976

38,899

32,454

Net margin

31%

22%

31%

28%

Attributable to:

Equity holders of the Company

38,542

20,382

38,542

33,107

Non-controlling interests

357

594

357

(653)

Non-IFRS profit

attributable to equity holders of the Company

32,303

24,412

32,303

30,153

Earnings per share for profit attributable to

equity holders of the Company

(in RMB per share)

- basic

4.059

2.151

4.059

3.491

- diluted

3.964

2.127

3.964

3.437

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in millions,unless specified

Unaudited

3Q2020

3Q2019

Profit for the period

38,976

Other comprehensive income,net of tax:

Items that may be subsequently reclassified to profit or loss

Share of other comprehensive income/(loss) of associates and joint

ventures

192

(21)

Transfer of share of other comprehensive income to profit or loss upon

deemed disposal of associates

-

(3)

Currency translation differences

(5,731)

2,069

Other fair value gains/(losses)

169

(475)

Items that will not be subsequently reclassified to profit or loss

Net gains/(losses) from changes in fair value of financial assets at fair

value through other comprehensive income

9,535

(3,213)

Other fair value gains/(losses)

202

(96)

4,367

(1,739)

Total comprehensive income for the period

43,266

19,237

Attributable to:

Equity holders of the Company

43,082

18,885

Non-controlling interests

184

352

OTHER FINANCIAL INFORMATION

RMB in millions,unless specified

Unaudited

3Q2020

2Q2020

3Q2019

EBITDA(a)

45,055

40,525

35,378

Adjusted EBITDA (a)

47,849

43,742

38,123

Adjusted EBITDA margin(b)

38%

38%

39%

Interest and related expenses

1,855

1,822

2,086

Net cash/(debt) (c)

6,363

7,212

(7,173)

Capital expenditures (d)

8,684

9,466

6,632

Note:

(a) EBITDA is calculated as operating profit minus interest income and other gains/losses,net,and adding back depreciation of property,plant and equipment,investment properties as well as right-of-use assets,and amortisation of intangible assets. Adjusted EBITDA is calculated as EBITDA plus equity-settled share-based compensation expenses.

(b) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues.

(c) Net cash/(debt) represents period end balance and is calculated as cash and cash equivalents,plus term deposits and others,minus borrowings and notes payable.

(d) Capital expenditures consist of additions (excluding business combinations) to property,construction in progress,investment properties,land use rights and intangible assets (excluding video and music content,game licences and other content).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

RMB in millions,unless specified

Unaudited

Audited

As at

September 30,2020

As at

December 31,2019

ASSETS

Non-current assets

Property,plant and equipment

56,153

46,824

Land use rights

15,801

15,609

Right-of-use assets

10,646

10,847

Construction in progress

4,318

3,935

Investment properties

628

855

Intangible assets

137,135

128,860

Investments in associates

247,985

213,614

Investments in joint ventures

7,119

8,280

Financial assets at fair value through profit or loss

168,926

128,822

Financial assets at fair value through other

comprehensive income

143,935

81,721

Prepayments,deposits and other assets

23,423

23,442

Deferred income tax assets

22,981

18,209

Term deposits

31,664

19,000

870,714

700,018

Current assets

Inventories

1,164

718

Accounts receivable

41,696

35,839

Prepayments,deposits and other assets

38,237

27,840

Other financial assets

1,650

375

Financial assets at fair value through profit or loss

6,135

7,114

Term deposits

75,692

46,911

Restricted cash

2,250

2,180

Cash and cash equivalents

152,491

132,991

319,315

253,968

Total assets

1,190,029

953,986

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

RMB in millions,2019

EQUITY

Equity attributable to equity holders of the Company

Share capital

-

-

Share premium

44,804

35,271

Shares held for share award schemes

(4,351)

(4,002)

Other reserves

60,763

16,786

Retained earnings

475,887

384,651

577,103

432,706

Non-controlling interests

69,394

56,118

Total equity

646,497

488,824

LIABILITIES

Non-current liabilities

Borrowings

118,037

104,257

Notes payable

127,375

83,327

Long-term payables

3,057

3,577

Other financial liabilities

6,846

5,242

Deferred income tax liabilities

14,488

12,841

Lease liabilities

8,105

8,428

Deferred revenue

6,304

7,334

284,212

225,006

Current liabilities

Accounts payable

87,008

80,690

Other payables and accruals

48,738

45,174

Borrowings

14,117

22,695

Notes payable

-

10,534

Current income tax liabilities

13,470

9,733

Other tax liabilities

1,941

1,245

Other financial liabilities

4,165

5,857

Lease liabilitiess

3,454

3,279

Deferred revenue

86,427

60,949

259,320

240,156

Total liabilities

543,532

465,162

Total equity and liabilities

1,986

RECONCILIATIONS OF IFRS TO NON-IFRS RESULTS

As

reported