2014

Tencent Announces 2013 Third Quarter Results

HONG KONG, Nov 13, 2013 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company", SEHK 00700), a leading provider of comprehensive Internet services in China, today announced the unaudited consolidated results for the third quarter of 2013 ended September 30, 2013.

Highlights of the Third Quarter of 2013:

  • Total revenues were RMB15,535.1 million (USD2,526.9 million1), an increase of 8.0% over the second quarter of 2013 ("QoQ") or an increase of 34.3% over the third quarter of 2012 ("YoY").
  • Revenues from Value-Added services ("VAS") were RMB11,635.2 million (USD1,892.5 million), an increase of 8.2% QoQ or an increase of 24.9% YoY.
  • Revenues from online advertising were RMB1,390.1 million (USD226.1 million), an increase of 7.2% QoQ or an increase of 36.9% YoY.
  • Revenues from eCommerce transactions were RMB2,359.3 million (USD383.8 million), an increase of 7.3% QoQ or an increase of 108.1% YoY.
  • Gross profit was RMB8,498.8 million (USD1,382.4 million), an increase of 9.0% QoQ or an increase of 25.4% YoY.  Gross margin decreased to 54.7% from 58.6% of the third quarter of 2012.
  • Operating profit was RMB4,815.8 million (USD783.3 million), an increase of 5.5% QoQ or an increase of 16.8% YoY.  Operating margin decreased to 31.0% from 35.7% of the third quarter of 2012.
  • Non-GAAP operating profit[2] was RMB5,331.4 million (USD867.2 million), an increase of 5.6% QoQ or an increase of 20.0% YoY.  Non-GAAP operating margin decreased to 34.3% from 38.4% of the third quarter of 2012.
  • Profit for the quarter was RMB3,876.2 million (USD630.5 million), an increase of 5.2% QoQ or an increase of 19.6% YoY.  Net margin decreased to 25.0% from 28.0% of the third quarter of 2012.
    Non-GAAP profit for the quarter2 was RMB4,411.7 million (USD717.6 million), an increase of 5.3% QoQ or an increase of 23.0% YoY.  Non-GAAP net margin decreased to 28.4% from 31.0% of the third quarter of 2012.
  • Profit attributable to equity holders of the Company for the quarter was RMB3,866.7 million (USD628.9 million), an increase of 5.1% QoQ or an increase of 20.1% YoY.
    Non-GAAP profit attributable to equity holders of the Company for the quarter2 was RMB4,375.7 million (USD711.7 million), an increase of 5.4% QoQ or an increase of 23.2% YoY.
  • Basic earnings per share were RMB2.105.  Diluted earnings per share were RMB2.070.
  • Key platform statistics:
    • Monthly active Instant Messaging ("IM") user accounts were 815.6 million, a decrease of 0.4% QoQ or an increase of 4.0% YoY.
    • Peak simultaneous online IM user accounts were 178.2 million, an increase of 2.9% QoQ or an increase of 6.5% YoY. 
    • Combined MAU of Weixin and WeChat were 271.9 million, an increase of 15.3% QoQ or an increase of 124.3% YoY.
    • Monthly active Qzone user accounts were 623.3 million, a decrease of 0.5% QoQ or an increase of 5.1% YoY. 
    • Peak simultaneous online QQ Game Platform user accounts were 8.2 million, a decrease of 2.4% QoQ or a decrease of 12.8% YoY.
    • Fee-based VAS registered subscriptions were 89.0 million, a decrease of 9.8% QoQ or a decrease of 17.2% YoY. 

[1] Figures stated in USD are based on USD1 to RMB6.1480
[2] See "Non-GAAP Financial Measures" section for more details on the reasons for presenting these measures  

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "In the third quarter, we achieved continued momentum operationally, strategically, and financially.  Operationally, we launched a number of mobile games integrated with Mobile QQ and Weixin, which have become highly popular in China.  Strategically, we invested into, and formed a strategic cooperation with Sogou, a leading search services, and look forward to providing our users with an enhanced search experience.  Financially, we reported healthy growth in revenue, earnings, and free cash flow.  We will continue to invest in our business and ecosystem through partnerships and strategic investments to create more value for our users, advertisers, developers and partners."

Financial Review for the Third Quarter of 2013

VAS revenues increased 24.9% YoY to RMB11,635.2 million and represented 74.9% of our total revenues for the third quarter of 2013.  Online games revenues increased 35.4% YoY to RMB8,424.3 million.  This mainly reflected higher revenues from major domestic PC titles, contribution from new PC titles, and an increase in international revenues.  Social networks revenues increased by 3.7% YoY to RMB3,210.8 million.  This was primarily driven by growth in item-based sales within applications on our open platforms, partly offset by a decline in subscription revenues.  Smart phone games integrated with Mobile QQ and Weixin also contributed to the revenue growth of our online games and social networks.

Online advertising revenues increased 36.9% YoY to RMB1,390.1 million and represented 8.9% of our total revenues.  This was primarily driven by significant growth in revenues from performance-based social advertising and online video advertising.  Revenues from traditional brand advertising also increased.

eCommerce transactions revenues increased 108.1% YoY to RMB2,359.3 million and represented 15.2% of our total revenues.  This mainly reflected a significant growth in our principal eCommerce transactions.  Fees generated from transactions on our marketplace also increased.

Other Key Financial Information for the Third Quarter of 2013

Share-based compensation was RMB477.5 million for the third quarter of 2013 as compared with RMB446.6 million for the previous quarter. 

Capital expenditure was RMB1,620.9 million for the third quarter of 2013 as compared with RMB1,464.0 million for the previous quarter. 

The Company didn't repurchase any shares on the Stock Exchange during the third quarter of 2013 and as compared with 4,585,700 shares repurchased for an aggregate consideration of approximately HKD1,125.5 million in the previous quarter.

As at September 30, 2013, net cash position totaled RMB34,400.4 million which excluded short-term borrowings of RMB6,007.0 million and long-term notes payable of RMB9,216.4 million.

As at September 30, 2013, the total number of shares of the Company in issue was 1.859 billion.

BUSINESS REVIEW AND OUTLOOK

Overall Financial Performance

In the third quarter of 2013, we achieved solid year-on-year growth in revenues and profits, while driving uptake of our smart phone applications and launching several smart phone games.

  • VAS.  Our online game business benefited from the growth of our major PC titles and initial contributions from smart phone games integrated with Mobile QQ and Weixin.  Our social network revenues grew as applications on our open platforms registered a significant increase in item-based sales, offsetting weakness in subscription services. 
  • Online advertising.  Our online advertising business achieved a solid revenue increase compared to the same period last year, reflecting growth across brand display and performance display categories.  Performance-based social advertising and online video advertising were the key growth drivers of the business. 
  • eCommerce transactions.  The third quarter of 2013 saw a significant year-on-year increase in revenues from principal eCommerce transactions as we improved our user experience and expanded our business coverage.  Fees generated from transactions on our marketplaces also increased compared to the same period last year.

Strategic Highlights

In September 2013, we made a joint press announcement with Sohu and Sogou regarding the establishment of a strategic co-operation, under which we invested a net cash amount of USD448 million in Sogou and merged our SoSo search-related businesses and certain other assets with Sogou.  Immediately after the transaction, we held 36.5% of Sogou's equity capital and 20.6% of the voting interest of Sogou, each on a fully-diluted basis.

Sogou will continue to operate independently.  We will work closely with Sogou on joint development, cross-promotion and integration related to products and services, while collaborating in areas of search technology, user insights and data sharing.  Sogou's products will have direct access to the vast user base of our communities.

We believe Sogou is the ideal partner for us to further develop search opportunities in China.  The transaction reinforces our "open, win-win" philosophy of working with leading teams to create innovative products for users, and to build a healthy, diversified ecosystem for the industry.  We believe that Sogou, benefiting from its combination with SoSo, will deliver superior search experiences to users on our social, browser and content platforms, especially on mobile devices.  We expect that Sogou may also enjoy cost synergies and greater monetisation potential as a result of the economies of scale inherent in the search business.

Divisional and Product Highlights

Communications Platforms

In the third quarter of 2013, the user base of QQ grew incrementally, with MAU increasing by 4.0% on a year-on-year basis to 815.6 million at the end of the quarter.  Aggregate MAU was relatively stable quarter-on-quarter, while smart device MAU3 grew by 10.1% quarter-on-quarter, reflecting increased user adoption of Mobile QQ as we enhanced its user experience and features.  PCU for the quarter reached 178.2 million, representing year-on-year growth of 6.5%.

Combined MAU of Weixin and WeChat increased by 124.3% on a year-on-year basis to 271.9 million at the end of the third quarter of 2013.  The rapid active user expansion was supported by the launch of new services and features, such as games and online payment for Weixin, and improved user experience.  In addition, WeChat benefited from marketing activities in international markets.

Social Platforms

Qzone's MAU increased by 5.1% on a year-on-year basis to 623.3 million at the end of the third quarter of 2013.  On a quarter-on-quarter basis, while aggregate MAU remained broadly stable, smart device MAU4 grew by 10.4% quarter-on-quarter, reflecting increased user adoption of Mobile Qzone.

[3] Smart device MAU of QQ denotes the total number of QQ MAU that logged in via the Mobile QQ application on iOS or Android devices at least once during the last calendar month of the quarter. Aggregate MAU of QQ denotes the total number of user accounts that logged into QQ on any device at least once during the last calendar month of the quarter.
[4] Smart device MAU of Qzone denotes the total number of Qzone MAU that logged in via the Mobile Qzone applications on iOS or Android devices at least once during the last calendar month of the quarter. Aggregrate MAU of Qzone denotes the total number of user accounts that logged into Qzone on any device at least twice during the last calendar month of the quarter.

Media Platforms

In the third quarter of 2013, we made significant progress in mobilising our media platforms.  For example, Tencent News has significantly expanded its user base and reinforced its leading position via mobile applications as well as plug-ins on Mobile QQ and Weixin.  We are exploring monetising Tencent News via splash screen advertisements and sponsored news feeds.

VAS

Our open platforms delivered significant year-on-year growth in paying users and revenues.  During the quarter, we continued to focus on nurturing success for third-party developers and doubled the number of revenue-generating applications compared to the same period last year.  We also strengthened our distribution capabilities, in order to enhance the reach of applications on our platforms.

Our VAS subscription count continued to decline in the third quarter of 2013, primarily reflecting lower consumption of our paid subscriptions as users shift from PCs to mobile devices, due to fewer paid privileges on smart devices as compared to those on PCs or feature phones.  In addition, stringent measures to clean up certain user accounts acquired through mobile channels with low possibility of fee collection impacted our subscription count.  We are in the process of aligning our VAS subscription services with the mobile Internet opportunities, through smart-phone-oriented subscription services such as Super VIP.

In the third quarter of 2013, our online game business benefited from the growth of our major domestic titles and higher contribution from international markets.  QQ Game experienced a decline in PCU compared to the same period last year as increasing mobile usage resulted in a more dispersed user activity pattern, and as our open platforms impacted user activity.  Since August 2013, we have introduced a number of smart phone games integrated with Mobile QQ and Weixin, many of which achieved first-ranked positions in application store rankings of game downloads in China.  We believe such consistent performance demonstrates that our mobile platforms can achieve not only extensive user reach via Mobile QQ and Weixin game centers, but also viral adoption and enhanced user engagement by enabling game players to interact with their friends and families.  We will expand our smart phone game portfolio for Mobile QQ and Weixin with both self-developed and third-party games.  In our income statement, we allocate revenues from games integrated with Mobile QQ and Weixin to different revenue categories under the VAS segment.  The portion attributable to the Mobile QQ and Weixin platforms is included in social network revenues, while the remaining portion, which is related to game operations and game development, is included in online game revenues. 

Online Advertising

Our advertising business continued to expand in the third quarter of 2013, with revenue growth across the brand display and performance display categories.  For brand display advertising, revenues from our online video platform achieved strong growth, riding on an expanded advertiser base and improved pricing.  Our regional portals also registered revenue growth.  For performance display advertising, revenues from our social platforms benefited from growth in impression volume and improved targeting, which enables advertisers to achieve competitive cost per click while yielding attractive revenue per thousand impressions for our platforms.  For search advertising, we expect the integration between Sogou and SoSo to complete by the end of 2013.

eCommerce Transactions

The third quarter of 2013 saw a significant year-on-year growth in the volume of principal eCommerce transactions.  This reflected our focus on enhancing user experience, broadening product categories and expanding geographic coverage.  Our marketplaces also achieved revenue growth compared to the same period last year, with improved product selection and customer service.

About Tencent

Tencent uses technology to enrich the lives of Internet users.  Every day, hundreds of millions of people communicate, share experiences, consume information, seek entertainment, and shop online through our integrated platforms.  Our diversified services include QQ, Weixin and WeChat for communications; Qzone for social networking; QQ Game Platform for online games; QQ.com for information; as well as our eCommerce open platform.  Our company was founded in Shenzhen in 1998 and went public on the Hong Kong Stock Exchange in 2004.  We seek to evolve with the Internet by investing in innovation, providing a hospitable environment for our partners, and staying close to our users. 

For more information, please visit www.tencent.com/ir

For enquiries, please contact:

Catherine Chan Tel: (86) 755 86013388 ext 88369 or (852) 31485100 Email: cchan#tencent.com
Jane Yip Tel: (86) 755 86013388 ext 81374 or (852) 31485100 Email: janeyip#tencent.com

Non-GAAP Financial Measures

To supplement the consolidated results of the Company prepared in accordance with IFRS, certain non-GAAP financial measures, including non-GAAP operating profit, non-GAAP operating margin, non-GAAP profit for the period, non-GAAP net margin and non-GAAP profit attributable to equity holders of the Company, 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 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.

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 realized 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
In RMB '000 (unless otherwise stated)


Unaudited


Unaudited


3Q2013

2Q2013


3Q2013

3Q2012

Revenues

15,535,112

14,384,521


15,535,112

11,565,556

    VAS

11,635,168

10,752,102


11,635,168

9,317,244

Online advertising

1,390,145

1,297,257


1,390,145

1,015,266

eCommerce transactions

2,359,305

2,199,448


2,359,305

1,133,901

    Others

150,494

135,714


150,494

99,145

Cost of revenues

(7,036,286)

(6,590,285)


(7,036,286)

(4,787,093)

Gross profit

8,498,826

7,794,236


8,498,826

6,778,463

Gross margin

54.7%

54.2%


54.7%

58.6%

Interest income

336,862

324,241


336,862

205,781

Other gains/(losses), net

67,111

81,687


67,111

(14,791)

S&M expenses

(1,465,936)

(1,234,117)


(1,465,936)

(819,790)

G&A expenses

(2,621,080)

(2,400,943)


(2,621,080)

(2,025,298)

Operating profit

4,815,783

4,565,104


4,815,783

4,124,365

Operating margin

31.0%

31.7%


31.0%

35.7%

Finance (costs)/income, net

(22,483)

14,333


(22,483)

(99,478)

Share of profit/(losses) of associates

49,814

46,070


49,814

(21,188)

Share of losses of jointly controlled entities

(12,119)

(15,095)


(12,119)

(6,089)

Profit before income tax

4,830,995

4,610,412


4,830,995

3,997,610

Income tax expense

(954,801)

(926,157)


(954,801)

(756,465)

Profit for the period

3,876,194

3,684,255


3,876,194

3,241,145

Net margin

25.0%

25.6%


25.0%

28.0%

Attributable to:






    Equity holders of the Company

3,866,662

3,680,389


3,866,662

3,218,693

    Non-controlling interests

9,532

3,866


9,532

22,452







Non-GAAP profit attributable to equity holders of the Company

4,375,718

4,152,001


4,375,718

3,551, 337







Earnings per share (GAAP)






- basic (RMB)

2.105

2.009


2.105

1.759

- diluted (RMB)

2.070

1.976


2.070

1.727

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
In RMB '000 (unless otherwise stated)






Unaudited


Unaudited


3Q2013

2Q2013


3Q2013

3Q2012

Profit for the period

3,876,194

3,684,255


3,876,194

3,241,145

Other comprehensive income, net of tax:






Items that may be reclassified to profit or loss






Share of other comprehensive (losses)/income of associates

(106)

495


(106)

-

Net gains/(losses) from changes in fair value of available-for-sale financial assets

2,233,412

367,783


2,233,412

(37,923)

Currency translation differences

29,892

(28,407)


29,892

125

Total comprehensive income for the period

6,139,392

4,024,126


6,139,392

3,203,347

Attributable to:






   Equity holders of the Company

6,127,983

4,025,050


6,127,983

3,180,882

   Non-controlling interests

11,409

(924)


11,409

22,465

 



OTHER FINANCIAL INFORMATION
In RMB '000 (unless otherwise stated)




Unaudited


3Q2013

2Q2013

3Q2012

EBITDA (a)

5,255,978

4,968,600

4,591,603

Adjusted EBITDA (a)

5,599,651

5,228,433

4,784,020

Adjusted EBITDA margin (b)

36.0%

36.3%

41.4%

Interest expense

98,310

92,002

86,104

Net cash (c)

34,400,433

33,556,493

23,492,375

Capital expenditures (d)

1,620,864

1,464,020

1,132,314

Note:

a)

EBITDA consists of operating profit less interest income, and plus other losses/(gains), net,depreciation of fixed assets and 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 cash represents period end balance and is calculated as cash and cash equivalents, term deposits, and restricted cash pledged for secured bank borrowings, minus borrowings and long-term notes payable.

d)

Capital expenditures consist of additions (excluding business combinations) to fixed assets,construction in progress, land use rights and intangible assets (excluding game and other content licences).

 

 


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 In RMB '000 (unless otherwise stated)



Unaudited


Unaudited


30 September


30 June

2013

2013





ASSETS




Non-current assets




Fixed assets 

8,529,409


8,182,143

Construction in progress

1,310,208


918,776

Investment properties

-


21,476

Land use rights

883,339


823,789

Intangible assets

4,870,541


4,798,610

Interests in associates

11,495,242


8,073,492

Investment in jointly controlled entities

9,256


8,742

Deferred income tax assets

175,370


174,135

Available-for-sale financial assets

8,756,251


6,282,289

Prepayments, deposits and other assets

1,201,334


1,060,129

Term deposits

13,620,000


13,081,000


50,850,950


43,424,581

Current assets

 

 




Inventories

984,761


715,789

Accounts receivable

2,669,501


2,895,327

Prepayments, deposits and other assets

5,476,141


5,240,152

Term deposits

17,401,202


15,920,732

Restricted cash

3,437,669


3,165,791

Cash and cash equivalents

18,602,602


14,791,822


48,571,876


42,729,613

Total assets

99,422,826


86,154,194

EQUITY




Equity attributable to the Company's equity holders




Share capital

200


199

Share premium

2,533,575


2,193,289

Shares held for share award scheme

 

(858,924)


(674,674)

Other reserves

2,813,403


584,071

Retained earnings

48,391,639


44,525,134


52,879,893


46,628,019

Non-controlling interests

806,931


823,757

Total equity

53,686,824


47,451,776





LIABILITIES




Non-current liabilities

 

 




Borrowings

3,442,880


2,471,480

Long-term notes payable

9,216,391


7,396,646

Deferred income tax liabilities

1,593,835


1,388,002

Long-term payables

1,546,136


1,535,840


15,799,242


12,791,968

Current liabilities




Accounts payable

6,563,151


6,410,489

Other payables and accruals

8,210,724


7,546,012

Borrowings

2,564,100


368,935

Current income tax liabilities

1,197,483


869,441

Other tax liabilities

549,247


579,855

Deferred revenue

10,852,055


10,135,718


29,936,760


25,910,450

Total liabilities

45,736,002


38,702,418

Total equity and liabilities

99,422,826


86,154,194









 

 

RECONCILIATIONS OF IFRS TO NON-GAAP RESULTS


Adjustments


In RMB '000 Unless specified

As reported

Equity-settled

share-based compensation

Cash-settled

share-based compensation (a)

Losses/(gains) on deemed

disposal (b)

Amortisation

of intangible
assets
(c)

Impairment provision (d)

Special

dividend

income (e)

Non-GAAP




                                 Unaudited three months ended 3September 2013



Operating profit

4,815,783

343,673

133,871

-

38,058

-



 

-

5,331,385

Profit for the period

3,876,194

343,673

133,871

-

57,969

-

-

4,411,707

Profit attributable to equity holders

3,866,662

340,211

119,069

-

49,776

-

-

4,375,718

Operating margin

31.0%







34.3%

Net margin

25.0%







28.4%



Unaudited three months ended 30 June 2013

Operating profit

4,565,104

259,833

186,744

-

38,784

-

-

5,050,465

Profit for the period

3,684,255

259,833

186,744

-

58,628

-

-

4,189,460

Profit attributable to equity holders

3,680,389

257,853

163,728

-

50,031

-

-

4,152,001

Operating margin

31.7%







35.1%

Net margin

25.6%







29.1%



                                Unaudited three months ended 30 September 2012


Operating profit

4,124,365

192,417

24,860

5,150

38,494

448,000

(390,472)

4,442,814

Profit for the period

3,241,145

192,417

24,860

5,150

66,013

448,000

(390,472)

3,587,113

Profit attributable to equity holders

3,218,693

189,660

21,921

5,150

58,385

448,000

(390,472)

3,551,337

Operating margin

35.7%







38.4%

Net margin

28.0%







31.0%



Note:

(a) Including put options granted to employees of investees on their shares and shares to be issued under investees' share-based incentive plans which can be acquired by the Group, and other incentives
(b) Losses/(gains) on deemed disposal of previously held interests in associates
(c) Amortisation of intangible assets resulting from acquisitions, net of related deferred tax
(d) Impairment provision for associates and available-for-sale financial assets
(e) Special dividend income from Mail.ru

SOURCE Tencent Holdings Limited



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