Tencent Announces 2019 Second Quarter and Interim Results

HONG KONG,Aug. 14,2019 -- 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 second quarter ("2Q2019") and first half year of 2019 ("1H2019") ended June 30,2019.

1H2019 Key Highlights

Revenues: +18% YoY,non-GAAP Profit attributable to equity holders of the Company: +17% YoY

Total revenues wereRMB174,286million(USD25,352million[1]),an increaseof18%over the first halfof 2018 ("YoY").

Operating profit was RMB64,263million (USD9,348 million),an increase of 22% YoY. Operating margin increased to 37% from 36% last year.

Profit for the period was RMB52,540 million (USD7,643million),an increase of23% YoY. Net margin increasedto 30% from 29%last year.

Profitattributable to equity holders of the Companyfor the period was RMB51,346million(USD7,469million),an increaseof25%YoY.

Basic earnings per share were RMB5.427. Diluted earnings per share were RMB5.362.

On a non-GAAP[2]basis,which excludes certain non-cash items and certain impact of M&A transactions:

- Operating profit was RMB55,751 million (USD8,110 million),an increase of 17% YoY. Operating margin remained stable YoY at 32%.

-Profit for the period was RMB45,864 million (USD6,671 million),an increase of 16% YoY. Net margin slightly decreased to 26% from 27% last year.

-Profit attributable to equity holders of the Company for the period was RMB44,455million (USD6,466million),an increase of 17% YoY.

-Basic earnings per share were RMB4.699. Diluted earnings per share were RMB4.643.

[1]Figures stated in USD are based on USD1 to RMB6.8747

[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

2Q2019 Key Highlights

Revenues: +21% YoY,non-GAAP Profit attributable to equity holders of the Company: +19% YoY

Total revenues wereRMB88,821 million(USD12,920million),an increaseof21%over the second quarter of 2018 ("YoY").

Operating profit was RMB27,521million (USD4,003 million),an increase of 26% YoY. Operating margin increased to 31% from 30% last year.

Profit for the period was RMB24,684 million (USD3,591 million),an increase of33% YoY. Net margin increased to 28% from 25% last year.

Profitattributable to equity holders of the Companyfor the quarter was RMB24,136million(USD3,511million),an increase of35%YoY.

Basic earnings per share were RMB2.550. Diluted earnings per share were RMB2.520.

On a non-GAAP basis,which excludes certain non-cash items and certain impact of M&A transactions:

-Operating profit was RMB27,281 million (USD3,968 million),an increase of 23% YoY. Operating margin increased to 31% from 30% last year.

-Profit for the period was RMB24,191 million (USD3,519 million),an increase of 18% YoY. Net margin decreased to 27% from 28% last year.

-Profit attributable to equity holders of the Company for the quarter was RMB23,525million (USD3,422million),an increase of 19% YoY.

-Basic earnings per share were RMB2.486. Diluted earnings per share were RMB2.456.

Mr. Ma Huateng,Chairman and CEO of Tencent,said,"During the second quarter,we sustained solid user,revenue and profit growth,and executed on key initiatives amid the challenging business environment. In recent months,we have accelerated our rate of innovation in games,releasing successful new titles in several different genres,introducing new play modes,and extending our popular season passes. In the meantime,we continue to strengthen the Healthy Gameplay System for promoting balanced gameplay for young users. We have widened merchant adoption for our mobile payment services,contributing to rapid growth in average transaction and total payment volume. We have extended and deepened our exclusive relationship with the NBA,the most-watched professional sports league in China,reinforcing our position as a leading digital entertainment platform. Amid the evolving macro-economic and competitive challenges,we continue to invest inenhancing our platforms,services and technologies,for better supporting our users and enterprise customers."

2Q2019 Financial Review

Revenues from VAS increased by 14% to RMB48,080 million for the second quarter of 2019 on a year-on-year basis. Online games revenues grew by 8% to RMB27,307 million. The increase was primarily due to revenue growth from smart phone games,including existing titles such as Honour of Kings,PUBG MOBILE and Red Alert OL,and recently launched titles such as Perfect World Mobile,offset by a decline in revenues from PC client games. Social networks revenues grew by 23% to RMB20,773 million. The increase mainly reflected higher revenues from digital content services such as live broadcast services and video streaming subscriptions.

Revenues from FinTech and Business Services increased by 37% to RMB22,888 million for the second quarter of 2019 on a year-on-year basis. The increase was primarily driven by revenue growth from commercial payment and cloud services,partly offset by the absence of interest income after transferring custodian cash balances to the People's Bank of China.

Revenues from Online Advertising increased by 16% to RMB16,409 million for the second quarter of 2019 on a year-on-year basis. Social and others advertising revenues increased by 28% to RMB12,009 million,mainly benefiting from greater advertising revenue contributions from Weixin Moments and QQ KanDian. Media advertising revenues decreased by 7% to RMB4,400 million,primarily reflecting lower contributions from our media platforms due to the absence of the FIFA World Cup tournament.

Other Key Financial Information for 2Q2019

Share-based compensation was RMB2,453 million,up 36% YoY.

EBITDA was RMB32,649 million,up 24% YoY. Adjusted EBITDA was RMB35,102 million,up 25% YoY.

Capital expenditure was RMB4,362million,down 38% YoY.

Free cash flow*was RMB20,698 million,up 27% YoY.

As at June 30,2019,net debt position totalled RMB15,766 million. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB329,012 million as at 30 June 2019.

* Starting from the first quarter of 2019,we have reclassified interest paid in cash flow presentation from operating activities to financing activities in order to reflect the nature of business. Comparative figures have been reclassified to conform with the current period presentation.

Business Review and Outlook

1. Company Strategic Highlights

During the second quarter,revenue,and profit growth,we enhanced our products,extended our key platforms,and deepened our relationships with large and small partners. For example:

We accelerated our rate of innovation in games,successfully releasing new games in several different genres,introducing new modes within some of our key titles,and extending our season passes. Meanwhile,we continue to strengthen the Healthy Gameplay System for promoting balanced gameplay for young users.

We widened merchant acceptance for our mobile payment services,contributing to rapid growth in average transaction volume and in total payment volume,as well as ongoing growth in commercial payment users.

We extended and deepened our exclusive relationship with the National Basketball Association ("NBA"),reinforcing our position as a leading digital entertainment platform.

Amid the evolving macro-economic and competitive challenges,we continue to invest in enhancing our platforms,for better supporting our users and enterprise customers.

2. Company Financial Performance

In the second quarter of 2019

Revenue increased by 21% year-on-year,primarily driven by commercial payment services and other FinTech services,smart phone games,and other digital content sales.

Operating profit increased by 26% year-on-year. Non-GAAP operating profit increased by 23% year-on-year.

Profit attributable to equity holders of the Company increased by 35% year-on-year. Non-GAAP profit attributable to equity holders of the Company increased by 19% year-on-year.

3. Company Business Highlights

Operating Information

As at

30 June

2019

As at

30 June

2018

Year-

on-year

change

As at

31 March

2019

Quarter-

on-quarter

change

(in millions,unless specified)

MAU of QQ

807.9

803.2

0.6%

823.0

-1.8%

Smart device MAU of QQ

706.7

708.6

-0.3%

700.4

0.9%

Combined MAU of Weixin

and WeChat

1,132.7

1,057.7

7.1%

1,111.7

1.9%

Smart device MAU of

Qzone

553.5

542.7

2.0%

571.9

-3.2%

Fee-based VAS registered

subscriptions

168.9

153.9

9.7%

165.5

2.1%

Communicationand Social

During the second quarter of 2019,combined MAU of Weixin and WeChat was 1,133 million,up 7% year-on-year. Smart device MAU of QQ was 707 million,broadly stable year-on-year.

Weixin Mini Programs ecosystem has become more vibrant,attracting more developers and service providers. The number of medium-to-long-tail Mini Programs has more than doubled year-on-year while the nature of Mini Programs has become more diversified. For example,content Mini Programs allow users to conveniently create,upload and share interesting videos,music and news within Weixin. More than a dozen content Mini Programs have attained over 1 million DAU. Key user metrics including time spent per user,daily messages and video uploads sustained solid year-on-year growth during the second quarter.

We launched a major version upgrade for Mobile QQ,which contributed to an increase in the number of daily messages and strengthened user engagement. To enrich the core chat experience,we enhanced functionalities for messages in different forms such as voice and video. To broaden user connections,we upgraded algorithms to recommend new friends based on common interests and shared contacts. We introduced QQ Mini Programs,with entertainment and games-related Mini Programs attaining particular popularity among QQ users.

Online Games

Total online games revenues increased 8% year-on-year to RMB27.3 billion.

Smart phone games revenues (including smart phone games revenues attributable to our social networks business) amounted to RMB22.2 billion,up 26% year-on-year due to the popularity of existing key titles and recent releases. Sequentially,smart phone games revenues were up 5% quarter-on-quarter as we launched more games following monetisation licence approval resumption,offsetting weak seasonality. During the quarter,we released 10 games including an in-house AR game,Catchya,and in-house RPGs,Fairy Tail and Raziel,compared with only one game in the first quarter. Honour of Kings revenue increased year-on-year. Perfect World Mobile,a licensed RPG that we launched in March,contributed substantially to our second quarter revenue. Our in-house tactical tournament game,Peacekeeper Elite,has exceeded 50 million DAU since its launch in May and begun monetisation with a successful season pass offering,although reported revenue was limited in the second quarter due to the deferral impact.

We are in the early stages of implementing season passes for several of our key titles,contributing to paying propensity within those games. Our data suggest that season pass spending is largely complementary to the existing item sales model,and also enhances player activity. In July,we released three smart phone games in different game genres,including racing game KartRider Rush,strategy game Game of Thrones: Winter is Coming,and RPG Dragon Raja. All three have achieved top 10 positions in the iOS Grossing Chart for games in China. Internationally,we expanded our user base via our hit title PUBG MOBILE (which has exceeded 50 million DAU) and new games such as Speed Drifter (the international version of QQ Speed) and Chess Rush.

Our PC client games revenues were RMB11.7 billion,down 9% year-on-year,despite increased cash receipts,and down 15% quarter-on-quarter due to weak seasonality. League of Legends cash receipts increased year-on-year driven by popular eSports-themed skins. In June,League of Legends introduced a new play mode,Teamfight Tactics,contributing to growth in its DAU and user time spent. Teamfight Tactics is the global leader in the emerging auto-chess category. DnF has reduced monetisation as we focus on enhancing its user experience.

Digital Content

Our fee-based VAS subscriptions increased 10% year-on-year to 168.9 million,mainly attributable to video and music subscriptions. Tencent Video subscription counts were 96.9 million,up 30% year-on-year,benefitting from joint membership promotions with our strategic partners and our popular self-commissioned Chinese anime series,The Land of Warriors Season 2. However,the growth in our video subscriber base slowed,due to the delay in scheduling of top-tier drama series content.

During the 2018-2019 season of the NBA,490 million Internet users in China watched one or more games on our platforms,nearly tripling the number of Internet users who watched the NBA on Tencent platforms during the 2014-2015 season. Our partnership did not only increase fans engagement,brand power and monetisation capability for the NBA,but also reinforced Tencent Sports as the top Internet destination for sports fans in China,contributing to our advertising and subscription revenues. Recently,we announced a five-year partnership extension with the NBA. We will cooperate with the NBA in developing basketball-related smart phone games and eSports events.

Online Advertising

Our online advertising revenues were RMB16.4 billion,up 16% year-on-year,amid the challenging macro environment and increased supply of short video advertising inventories across the industry. We expect the negative impact from the current business environment will persist in the second half of 2019. Sequentially,revenues grew due to seasonal advertising demand from eCommerce and online education sectors. Social and others advertising revenues were RMB12.0 billion,up 28% year-on-year,driven by increased inventories and impressions for products such as Weixin Moments and QQ KanDian.

Media advertising revenues were RMB4.4 billion,down 7% year-on-year,as unexpected delays to airing certain top-tier drama series and the absence of the FIFA World Cup this year resulted in less sponsorship advertising revenues. Mobile video DAU remained stable,contributing to notable year-on-year and quarter-on-quarter growth from in-feed advertising within our Tencent Video app. In April,we released Season 2 of Produce 101,a highly popular self-commissioned variety show,which achieved record advertising billings for a program on Tencent Video.

FinTech and Business Services

FinTech and Business Services revenues were RMB22.9 billion,up 37% year-on-year. Excluding interest income on custodian cash balances,revenues were up 57% year-on-year. Within FinTech Services,commercial payments grew rapidly in terms of users,merchants,transaction volume and revenues,driving the segment revenue growth. Our wealth management platform,LiCaiTong,grew its aggregated customer assets to over RMB800 billion as of the end of the second quarter,indicating a trend that our users are increasingly keeping their money within our payment system. This trend brings down the frictional costs for users to use Weixin Pay,reducing our withdrawal fee revenue and bank charge expenses. We believe the overall impact will contribute to the vitality of our FinTech business in the long run. We remain focused on risk management of our FinTech businesses to sustain our long-term platform growth.

Within Business Services,cloud revenues grew robustly year-on-year as we expanded our sales team and product offerings to sign up more key accounts and large contracts. Meanwhile,we have deepened our penetration in small and medium businesses through close partnerships with Independent Software Vendors and resellers. We further strengthened the cloud-based development kits for Mini Programs developers to enable more efficient development processes,operations and maintenance. In the financial sector,we attained key contracts from insurance companies,banks and brokerage firms,including PICC,Bank of Communications and Haitong Securities. In July,we launched our "WeCity" cloud-based smart industry solutions for public services such as healthcare,transportation and education in various cities,including Changsha. According to the International Data Corporation,we ranked second in the public cloud IaaS market in China,and were among the top ten globally,in 2018.

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 communications 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 andbusiness 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) was listed on the Main Board of the Stock Exchange of Hong Kong in 2004.

For enquiries,please contact:

Catherine Chan

Tel: (86) 755 86013388 ext. 88369/ (852) 3148 5100 Email: cchan#tencent.com

Wendy Huang

Tel: (86) 755 86013388 ext. 50839/ (852) 3148 5100 Email: wendyyhuang#tencent.com

Jane Yip

Tel: (86) 755 86013388 ext. 68961/ (852) 3148 5100 Email: janeyip#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

2Q2019

2Q2018

2Q2019

1Q2019

Revenues

88,821

73,675

88,821

85,465

VAS

48,080

42,069

48,080

48,974

FinTech and Business Services

22,888

16,666

22,888

21,789

Online Advertising

16,409

14,110

16,409

13,377

Others

1,444

830

1,444

1,325

Cost of revenues

(49,695)

(39,229)

(49,695)

(45,645)

Gross profit

39,126

34,446

39,126

39,820

Gross margin

44%

47%

44%

47%

Interest income

1,652

1,072

1,408

Other gains,net

4,038

2,506

4,038

11,089

Selling and marketing expenses

(4,718)

(6,360)

(4,718)

(4,244)

General and administrative expenses

(12,577)

(9,857)

(12,577)

(11,331)

Operating profit

27,521

21,807

27,521

36,742

Operating margin

31%

30%

31%

43%

Finance costs,net

(1,982)

(1,151)

(1,117)

Shareof profit/(loss) of associates and joint ventures

2,370

1,526

2,370

(2,957)

Profit before income tax

27,909

22,182

27,909

32,668

Income tax expense

(3,225)

(3,602)

(3,225)

(4,812)

Profit for the period

24,684

18,580

24,684

27,856

Net margin

28%

25%

28%

33%

Attributable to:

Equity holders of the Company

24,136

17,867

24,136

27,210

Non-controlling interests

548

713

548

646

Non-GAAP profit attributable to equity holders of the

Company

23,525

19,716

23,525

20,930

Earnings per share for profit attributable to

equity holders of the Company

(in RMB per share)

- basic

2.550

1.893

2.550

2.877

- diluted

2.520

1.868

2.520

2.844

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

RMB in million,unless specified

Unaudited

2Q2019

2Q2018

Profit for the period

24,684

18,580

Other comprehensive income,net of tax:

Items that may be subsequently reclassified to profit or loss

Share of other comprehensivelossof associates and joint ventures

(2)

(123)

Currency translation differences

3,059

5,579

Other fair value (losses)/gains

(1,388)

332

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

Other fair value losses

2,582

(70)

(535)

(72)

4,181

5,181

Total comprehensive income for the period

28,865

23,761

Attributable to:

Equity holders of the Company

28,080

22,636

Non-controlling interests

785

1,125

OTHER FINANCIAL INFORMATION

RMB in million,unless specified

Unaudited

2Q2019

1Q2019

2Q2018

EBITDA(a)

32,649

33,566

26,409

Adjusted EBITDA (a)

35,102

35,598

28,139

Adjusted EBITDA margin (b)

40%

42%

38%

Interest and related expenses

1,757

1,499

1,188

Net debt (c)

(15,766)

(9,595)

(35,301)

Capital expenditures (d)

4,362

4,506

7,085

Note:

(a) EBITDA is calculated as operating profit less 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 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,plant and equipment,construction in progress,investment

properties,land use rights and intangible assets (excluding media contents,game licences and other contents).