Tencent Announces 2018 Third Quarter Results
HONG KONG,Nov. 14,2018 -- 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 ("3Q2018") ended September 30,2018.
3Q2018Key Highlights
Revenues: +24% YoY,non-GAAP Profit attributable to equity holders of the Company: +15% YoY
Total revenues were RMB80,595 million (USD11,716 million[1]),an increase of 24% over the third quarter of 2018 ("YoY").
Operating profit was RMB27,861 million (USD4,050 million),an increase of 22% YoY. Operating margin broadly stable at 35%.
Profit for the period was RMB23,405 million (USD3,402 million),an increase of 30% YoY. Net margin increased to 29% from 28% last year.
Profit attributable to equity holders of the Company for the quarter was RMB23,333 million (USD3,392 million),an increase of 30% YoY.
Basic earnings per share were RMB2.469. Diluted earnings per share were RMB2.440.
On a non-GAAP[2] basis,which excludes certain non-cash items and certain impact of M&A transactions:
- Operating profit was RMB22,563 million (USD3,280 million),an increase of 4% YoY. Operating margin decreased to 28% from 33% last year.
- Profit for the period was RMB20,423 million (USD2,969 million),an increase of 19% YoY. Net margin decreased to 25% from 26% last year.
- Profit attributable to equity holders of the Company for the quarter was RMB19,710 million (USD2,865 million),an increase of 15% YoY.
- Basic earnings per share were RMB2.085. Diluted earnings per share were RMB2.061.
"During the third quarter of 2018,we registered strong operating results in our businesses and maintained healthy financial metrics." said Mr. Ma Huateng,Chairman and CEO of Tencent. "Our advertising,digital content,payment and cloud services sustained robust activity and revenue growth,and now account for the majority of our revenue. For our game business,we implemented stringent self-imposed limitations on games playing by minors,which we believe put the game industry on a healthy and more solid foundation for future development. At the end of the quarter,we upgraded our organisation to help enterprises and various industries to benefit from the new trend of industrial internet through digitisation and technology innovation,and to provide consumers with better integrated entertainment and social experiences,as well as to unify our advertising sales platforms. We believe this strategic organisational upgrade will position us well for future long-term growth."
[1] Figures stated in USD are based on USD1 to RMB6.8792
[2] Non-GAAP adjustments excludes share-based compensation and M&A related impact such as net (gains)/losses from investee companies,amortisation of intangible assets and impairment provision
3Q2018 Financial Review
Revenues increased by 24% year-on-year,primarily benefiting from growth in payment-related services,online advertising,digital content sales and cloud services.
Revenues from our VAS business increased by 5% to RMB44,049 million for the third quarter of 2018 on a year-on-year basis. Online games revenues decreased by 4% to RMB25,813 million,mainly reflecting a decline in revenues from our PC client games,partially offset by an increase in revenues from our smart phone games. Social networks revenues increased by 19% to RMB18,236 million,primarily driven by revenue growth from digital content services such as live broadcast services and video streaming subscriptions.
Revenues from our online advertising business increased by 47% to RMB16,247 million for the third quarter of 2018 on a year-on-year basis. Social and others advertising revenues grew by 61% to RMB11,157 million. The increase mainly reflected more advertising inventories for properties such as Weixin Moments and new advertising format such as Mini Programs,as well as growth in revenues from our mobile advertising network and QQ KanDian. Media advertising revenues increased by 23% to RMB5,090 million. The growth was primarily driven by higher advertising revenues from Tencent Video due to successful drama series and self-commissioned variety shows.
Revenues from our other businesses increased by 69% to RMB20,299 million for the third quarter of 2018 on a year-on-year basis,mainly driven by higher contributions from our payment-related and cloud services.
Operating profit increased by 22% year-on-year. Non-GAAP operating profit increased by 4% year-on-year.
Profit attributable to equity holders of the Company increased by 30% year-on-year,mainly due to higher net other gains generated from investment related items compared to the same period last year. Non-GAAP profit attributable to equity holders increased by 15% year-on-year.
Other Key Financial Information for 3Q2018
Share-based compensation was RMB2,011 million,up 23% YoY.
EBITDA was RMB27,568 million,up 15% YoY. Adjusted EBITDA was RMB29,577 million,up 15% YoY.
Capital expenditure was RMB5,974 million,up 71% YoY.
Free cash flow was RMB26,354 million,down 4% YoY.
As at 30 September,2018,net debt position totalled RMB29,227 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB273,104 million as at 30 September 2018.
Operating Information
As at
30September
2018
As at
30 September
2017
Year-
on-year
change
As at
30 June
2018
Quarter-
on-quarter
change
(in millions,unless specified)
MAU of QQ
802.6
843.2
-4.8%
803.2
-0.1%
Smart device MAU of QQ
697.9
652.9
6.9%
708.6
-1.5%
Combined MAU of Weixin and
1,082.5
980.0
10.5%
1,057.7
2.3%
Smart device MAU of Qzone
531.1
551.8
-3.8%
542.7
-2.1%
Fee-based VAS registered
subscriptions
154.1
125.3
23.0%
153.9
0.1%
Communication and Social
QQ: Smart device MAU increased by 6.9% year-on-year to 697.9 million. We continued to expand our young user base and enhanced engagement with this targeted group via new entertainment-driven features and enriched video content. MAU and DAU for users aged 21 years or below grew year-on-year and quarter-on-quarter,and smart device MAU for young users climbed 16% year-on-year. Young users' time spent within Mobile QQ increased steadily year-on-year and quarter-on-quarter,mainly driven by increased consumption of video content and new interactive features. We reached 7 billion daily short and mini content video views across Tencent platforms,in particular QQ KanDian,our newsfeed service within Mobile QQ.
Weixin and WeChat: MAU reached 1,082.5 million,up 10.5% year-on-year. We saw healthy growth in user engagement benefiting from the increasing use cases offered by Mini Programs and Weixin Pay. Mini Programs deepened penetration across different industries,such as transportation and healthcare. User activity within Weixin benefited from strong growth in social video content viewing,with hundreds of millions of daily social video uploads.
Online Games
Smart phone games revenues (including smart phone games revenues attributable to our social networks business) grew 7% year-on-year and 11% sequentially to RMB19.5 billion,mainly due to the contributions from new games. We released 10 new titles,including Free Fantasy Online Mobile,MT4 and Saint Seiya during the quarter. Benefiting from positive seasonality and new avatar personalisation items,Honour of Kings' paying users increased sequentially,resulting in increased revenues quarter-on-quarter. Honour of Kings continued to be the leading game in China in terms of MAU and DAU. During the quarter,we further increased our smart phone games market share by user and time spent.
We have 15 games with monetisation approval,mostly RPG and action titles based on established IPs,in our game pipeline.
In international market,our PUBG MOBILE title became the 2nd most popular smart phone game globally (excluding China) by MAU,according to AppAnnie.
PC client games revenues were down by 15% year-on-year and down by 4% quarter-on-quarter to RMB12.4 billion. The year-on-year revenue decline was due to users' migration to mobile games and the high base in the same quarter last year. While our reported revenues declined quarter-on-quarter,our cash sales (before deferral) increased,benefiting from favourable seasonality and content updates for CrossFire,Dungeon & Fighter and our sports titles. In November 2018,League of Legends achieved viewership records for its World Championship final,at which Invictus Gaming became the first China team to win the Championship.
As the leading game company in China,we are seeking to create a healthy game environment for children. We implemented stringent self-imposed limitations on game playing by minors and recently introduced measures,such as real-ID verification process and face recognition check,to enhance the implementation. We believe the initiatives put the game industry on a more sustainable foundation for future development.
Digital Content
Our fee-based VAS subscriptions were up by 23% year-on-year to 154 million subscriptions,mainly attributable to growth in video subscriptions,in turn due to popular premium content,such as drama series Ruyi's Royal Love in the Palace and anime series Land of Warriors. Digital content revenues grew at a double-digit percentage rate year-on-year and at a high single-digit percentage rate quarter-on-quarter,benefiting from increased monetisation of our live broadcast services,significant uptake of our video subscriptions,and more sales of music and literature products.
We achieved 82 million video subscriptions,up 79% year-on-year and 10% quarter-on-quarter. Three drama series (Legend of Fuyao,Ruyi's Royal Love in the Palace and Sand Sea),and the anime series (Land of Warriors),contributed substantially to the subscription growth.
Online Advertising
Our online advertising business achieved 47% year-on-year and 15% quarter-on-quarter growth in revenues.
Media advertising revenues grew by 23% year-on-year and 8% quarter-on-quarter. For video advertising,revenues growth of 34% year-on-year and 13% quarter-on-quarter benefited from commercially successful drama series and increased sponsorship advertising for self-commissioned variety shows. For news advertising,revenues increased year-on-year due to higher ad-fill rates,but decreased slightly quarter-on-quarter due to fewer sports events in the third quarter compared to the second quarter.
Social and others advertising revenues grew by 61% year-on-year mainly driven by Weixin Moments,Mini Programs,mobile advertising network and QQ KanDian. Social and others advertising revenues grew by 19% sequentially due primarily to increased impressions and click-throughs of Mini Programs advertisements,and more impressions of Weixin Moments advertisements. We have been expanding our long-tail advertiser base for Weixin Moments through cooperating with local advertising agencies and converting Weixin Pay merchants to advertisers.
Others
We recorded 69% year-on-year and 16% quarter-on-quarter revenue growth for our other businesses,mainly contributed by our payment-related services,and by our cloud services.
We maintained our leadership in China's mobile payment market in terms of MAU and DAU. Our daily transaction volume increased over 50% year-on-year,within which our offline daily commercial payment transaction volume grew 200% year-on-year. We strengthened our payment infrastructure to ensure safer and more convenient payment services and largely completed our transition to the NetsUnion Clearing Corporation's centralised clearing and settlement system. In October 2018,we launched the first of its kind Cross-Border Mobile Payment services,allowing WeChat Pay HK users to conduct RMB-denominated transactions with Hong Kong dollars in Mainland China. Leveraging our large-scale payment platform and core technologies,we expanded our FinTech services in areas including wealth management,micro-loans and insurance. LiCaiTong added pension funds to its fund offering and its aggregated customer assets surpassed RMB500 billion at the end of the quarter. WeBank-originated WeiLiDai loan balances grew rapidly while their non-performing loan rate remained at below-industry level,benefiting from our advanced risk prediction models and user targeting.
Our cloud services revenues more than doubled year-on-year and increased at a double-digit percentage rate quarter-on-quarter. Revenues for the first three quarters of the year exceeded RMB6 billion. We sustained our leading cloud services position in the games and live broadcast sectors,and enlarged our presence in other sectors,such as finance and retail. The number of cloud paying customers grew at a triple-digit percentage rate year-on-year.
For other detailed disclosure,please refer to our website www.tencent.com/ir,or follow us via Weixin Official Account (Weixin ID: Tencent_IR):
About Tencent
Tencent uses technology to enrich the lives of Internet users. Our social products Weixin and QQ link our users to a rich digital content catalogue including games,music and books. Our proprietary targeting technology helps advertisers reach out to hundreds of millions of consumers in China. Our infrastructure services including payment,cloud and artificial intelligence create differentiated offerings and support our partners' business growth. Tencent invests heavily in people and innovation,enabling us to evolve with the Internet.
Tencent was founded in Shenzhen,China,in 1998. Shares of Tencent (00700.HK) are traded on the Main Board of the Stock Exchange of Hong Kong.
For investor and media enquiries,please contact:
Catherine Chan
Tel: (86) 755 86013388 ext. 88369/ (852) 3148 5100
Email: cchan#tencent.com
Jane Yip
Tel: (86) 755 86013388 ext. 68961/ (852) 3148 5100
Email: janeyip#tencent.com
Stella Lui
Tel: (86) 755 86013388 ext. 68870/ (852) 3148 5100
Email: stellalui#tencent.com
Kennis Lau
Tel: (86) 755 86013388 ext. 68958/ (852) 3148 5100
Email: kennislau#tencent.com
PH Cheung
Tel: (86) 755 86013388 ext. 68919/ (852) 3148 5100
Email: phcheung#tencent.com
Non-GAAP Financial Measures
To supplement the consolidated results of the Group prepared in accordance with IFRS,certain additional non-GAAP 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-GAAP 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-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 Group's core operations by excluding certain non-cash items and certain impacts of M&A transactions. In addition,non-GAAP adjustments include relevant non-GAAP adjustments for the Group's material associates based on available published financials of the relevant material 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 large number 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
3Q2018
3Q2017
3Q2018
2Q2018
Revenues
80,595
65,210
80,595
73,675
VAS
44,049
42,124
44,069
Online advertising
16,247
11,042
16,247
14,110
Others
20,299
12,044
20,299
17,496
Cost of revenues
(45,115)
(33,529)
(45,115)
(39,229)
Gross profit
35,480
31,681
35,480
34,446
Gross margin
44%
49%
44%
47%
Interest income
1,082
1,017
1,072
Other gains,net
8,762
3,918
8,762
2,506
Selling and marketing expenses
(6,573)
(4,812)
(6,573)
(6,360)
General and administrative expenses
(10,890)
(9,058)
(10,857)
Operating profit
27,861
22,746
27,861
21,807
Operating margin
35%
35%
35%
30%
Finance costs,net
(1,492)
(524)
(1,492)
(1,151)
Share of profit of associates and joint ventures
264
818
264
1,526
Profit before income tax
26,633
23,040
26,633
22,182
Income tax expense
(3,228)
(4,993)
(3,228)
(3,602)
Profit for the period
23,405
18,047
23,580
Net margin
29%
28%
29%
25%
Attributable to:
Equity holders of the Company
23,333
18,006
23,333
17,867
Non-controlling interests
72
41
72
713
Non-GAAP profit attributable to equity holders of
the Company
19,710
17,070
19,710
19,716
Earnings per share for profit attributable to
equity holders of the Company
(in RMB per share)
- basic
2.469
1.912
2.469
1.893
- diluted
2.440
1.888
2.440
1.868
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
RMB in million,unless specified
Unaudited
3Q2018
3Q2017
Profit for the period
23,047
Other comprehensive income,net of tax:
Items that may be subsequently reclassified to profit or loss
Share of other comprehensive income of associates and joint ventures
41
336
Net gains from changes in fair value of available-for-sale financial assets
-
1,895
Transfer to profit or loss upon disposal of available-for-sale financial assets
-
(176)
Currency translation differences
4,462
(2,338)
Other fair value gains
223
270
Items that will not be subsequently reclassified to profit or loss
Net losses from changes in fair value of financial assets at fair value through other
comprehensive income
(7,864)
-
Other fair value gains
22
241
(3,116)
228
Total comprehensive income for the period
20,289
18,275
Attributable to:
Equity holders of the Company
19,761
18,248
Non-controlling interests
528
27
OTHER FINANCIAL INFORMATION
RMB in million,unless specified
Unaudited
3Q2018
2Q2018
3Q2017
EBITDA (a)
27,568
26,409
24,024
Adjusted EBITDA (a)
29,577
28,139
25,632
Adjusted EBITDA margin (b)
37%
38%
39%
Interest and related expenses
1,298
1,188
794
Net (debt)/ cash (c)
(29,227)
(35,301)
18,862
Capital expenditures (d)
5,974
7,085
3,492
Note:
(a) EBITDA consists of operating profit less interest income and other gains/losses,net,and plus depreciation of property,plant and equipment as well as investment properties,and amortisation of intangible assets. Adjusted EBITDA consists of EBITDA plus equity-settled share-based compensation expenses.
(b) Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenues.
(c) Net (debt)/ cash 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,plant and equipment,construction in progress,investment properties,land use rights and intangible assets (excluding media contents,game licenses and other contents).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
RMB in million,unless specified
Unaudited
Audited
30 September 2018
31 December 2017
ASSETS
Non-current assets
Property,plant and equipment
33,740
23,597
Construction in progress
4,386
3,163
Investment properties
736
800
Land use rights
7,033
5,111
Intangible assets
48,663
40,266
Investments in associates
214,178
113,779
Investments in redeemable instruments of associates
-
22,976
Investments in joint ventures
8,624
7,826
Financial assets at fair value through profit or loss
92,214
-
Financial assets at fair value through other
comprehensive income
48,477
-
Available-for-sale financial assets
-
127,218
Prepayments,deposits and other assets
16,630
11,173
Other financial assets
2,923
5,159
Deferred income tax assets
13,850
9,793
Term deposits
-
5,365
491,454
376,226
Current assets
Inventories
456
295
Accounts receivable
25,736
16,549
Prepayments,deposits and other assets
26,208
17,110
Other financial assets
415
465
Financial assets at fair value through profit or loss
6,152
-
Term deposits
32,805
36,724
Restricted cash
2,306
1,606
Cash and cash equivalents
105,394
105,697
199,472
178,446
Total assets
690,926
554,672
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
RMB in million,unless specified
Unaudited
Audited
30 September 2018
31 December 2017
EQUITY
Equity attributable to equity holders of the Company
Share capital
-
-
Share premium
25,767
22,204
Treasury shares
(102)
-
Shares held for share award schemes
(4,299)
(3,970)
Other reserves
7,063
35,158
Retained earnings
285,952
202,682
314,381
256,074
Non-controlling interests
28,381
21,019
Total equity
342,762
277,093
LIABILITIES
Non-current liabilities
Borrowings
82,578
82,094
Notes payable
51,410
29,363
Long-term payables
6,072
3,862
Other financial liabilities
1,403
2,154
Deferred income tax liabilities
9,881
5,975
Deferred revenue
4,741
2,391
156,085
125,839
Current liabilities
Accounts payable
69,439
50,085
Other payables and accruals
30,482
29,433
Borrowings
25,965
15,696
Notes payable
13,747
4,752
Current income tax liabilities
9,511
8,708
Other tax liabilities
946
934
Deferred revenue
41,989
42,132
192,079
151,740
Total liabilities
348,164
277,579
Total equity and liabilities
690,672
RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS
As
reported
Adjustments
Non-GAAP
RMB in million,
unless specified
Share-based
compensation (a)
Net (gains)/losses from
investee companies (b)
Amortisation of
intangible assets (c)
Impairment
provision (d)
Unaudited three months ended September 30,2018
Operating profit
27,861
2,011
(20,949)
127
13,513
22,563
Profit for the period
23,405
3,531
(20,840)
916
13,411
20,423
Profit attributable to equity holders
23,333
3,458
(20,819)
876
12,862
19,710
Operating margin
35%
28%
Net margin
29%
25%
Unaudited three months ended June 30,2018
Operating profit
21,807
1,798
(4,010)
99
2,564
22,258
Profit for the period
18,580
2,562
(4,033)
813
2,577
20,499
Profit attributable to equity holders
17,867
2,478
(3,986)
779
2,578
19,716
Operating margin
30%
30%
Net margin
25%
28%
Unaudited three months ended September 30,2017
Operating profit
22,746
1,632
(3,169)
110
295
21,614
Profit for the period
18,047
1,851
(3,475)
395
356
17,174
Profit attributable to equity holders
18,006
1,816
(3,475)
367
356
17,070
Operating margin
35%
33%
Net margin
28%
26%
Note:
(a) Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies' share-based incentive plans which can be acquired by the Group,and other incentives
(b) Including net (gains)/losses on deemed disposals,disposals of investee companies and businesses,and fair value changes arising from investee companies
(c) Amortisation of intangible assets resulting from acquisitions,net of related deferred tax
(d) Impairment provision for associates,joint ventures,AFS and intangible assets arising from acquisitions
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