Good day and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2022 Fourth Quarter and Annual Results Announcement Webinar. I'm Wendy Huang from Tencent IR team. At this time, all participants are in a listen-only mode. After management's presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance held in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now let me introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview; President, Martin Lau, will discuss strategy review; Chief Strategy Officer, James Mitchell, will provide a business review; Chief Financial Officer, John Lo, will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Great. Thank you, Wendy. Good evening. Thanks to everyone for joining us. During 2022, we increased our business efficiency, sharpening our focus on core activities and developed new services and revenue lines, positioning us for a sustainable growth model in the future. A few notable achievements. In Weixin, Video Accounts became a leading shop from video and live streaming platform in China, while mini programs achieved strong growth in both DAU and GMV, contributing to the real economics for games domestically which significantly reduced minors' time spent while sustaining our market leadership. Internationally, we elevate VALORANT as a top global franchise and published two out of the top three new mobile games of the year. In advertising, we returned to positive revenue growth in the fourth quarter. Through the launch of Video Account in-feed ads, enhanced the transaction-driven capability of our ad inventories and improve our machine learning infrastructure. For cloud, our upgrade strategy with Saudi initially lower revenue but improved gross profit margin, we assisted that the digital transformation of non-Internet industries and public services. During the year, we returned increased capital to our shareholders through distribution income share repurchase and cash dividend. We also made significant progress in our drive to create sustainable social value. For example, we announced our commitment to carbon neutrality by 2030. Our digital charity platform raised donations for over 25,000 projects and engaged more than 100 million users. In support of basic search, we pledged RMB10 billion over the next 10 years to establish the new cornerstone investigator program. On the governance front, we welcome Professor John to join the Tencent Board last August. Martin will rotate off the Board at the upcoming AGM, while fully dedicated as our exceptional president. This adjustment will more clearly separate both from [indiscernible] at least the possibilities, increased the proportion of independent directors and increased the proportion of senior directors. Now let me go through the headline financial numbers for the quarter. During the fourth quarter, total revenue was RMB145 billion, up 0.5% year-on-year and 3% quarter-on-quarter. Gross profit was RMB62 billion, up 7% year-on-year and broadly flat quarter-on-quarter. Non-IFRS operating profit was RMB39 billion, up 19% quarter-on-quarter -- year-on-year or down 4% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was RMB30 billion, up 19% year-on-year or down 8% quarter-on-quarter. Now I will hand over to Martin for the strategic review.

Good evening, and good morning to everybody, and thank you, Tony, for the kind words earlier. I look forward to sustaining and indeed enhancing my dedication as Tencent's President in the years ahead. With that, I will share some of our perspectives on our strategy for the future, which we believe is actually very exciting. In the year of 2022, we aligned our businesses with the new industry paradigm while continuing to invest and pursue value creation opportunities in strategic areas. Today, I'm pleased to tell you that our consistent efforts have yielded encouraging results, and we have successfully repositioned ourselves for sustainable and high-quality growth. Let's take a look at our financial performance, which has started to improve since mid-2022, particularly for the fourth quarter, our revenue stabilized on a year-on-year basis following the decline in the last two quarters. We achieved year-on-year improvements in gross margins across all business segments. Non-IFRS operating profits and net profits both increased 19% year-on-year compared to a low base in the same period last year. The improved financial results reflect our proactive initiatives, coupled with an improved macro environment. First, we executed efficiency initiatives to improve margins and promote earnings quality. These included reducing costs and sharpening business focus. Second, we made significant progress in developing new high-quality and high potential revenue streams such as video accounting feedbacks and international games. Third, for the macro environment, we're encouraged to see positive signals related to post-COVID recovery and regulatory normalization. Looking forward, we're confident of our future growth potential underpinned by multiple drivers. First, we see expanding opportunities in advertising, FinTech services and games along with continued recovery in macro environment. Second, we're still in the early stage of monetizing Video Accounts, and we are nurturing additional revenue streams such as live stream e-commerce. Third, we'll continue to focus on operational efficiency and remain disciplined in resource allocation. Fourth, we have been leveraging our long-standing expertise in developing and applying AI technologies as a growth multiplier, the recent industry breakthroughs and foundation models and consequently in generative AI applications present exciting opportunities for us. In the next few slides, I will discuss more about some of these drivers. Let's start with advertising. While it's still early days for macro recovery in China, I'm pleased that our ad revenue returned to double-digit growth in the fourth quarter, albeit comparing to an easy base period last year. We registered positive growth in the fourth quarter even if we take out the new contribution from video accounting feed ads to enforce -- reinforce our growth potential as macro environment improves in 2023, we have been expanding our inventories as well as improving our capabilities to enhance conversion for advertisers. For new ad inventories, we see strong market demand for Video Accounts in feed ads. We're making very good progress in ramping up revenue on the back of rapid user engagement growth and high advertisers demand. Additionally, we're increasing upload of Weixin official accounts and enhancing access to quality inventories in mobile ad network. To drive conversion for advertisers, we have been upgrading our transactional capabilities via innovative ad formats, CRM tools for merchants and shopping tools for users. The portion of Weixin ad revenue generated from click to purchase and click-to-message ads has been increasing and exceeded 1/3 in the fourth quarter. This possible trend demonstrates that advertisers increasingly recognize our differentiated capabilities in driving transactions, positioning us well for consumption recovery. In addition, we have been investing in our new machine learning infrastructure. We've rolled out a new ad targeting engine, enabling us to enhance conversion rates and help improve ROI for advertisers, especially for long-term for advertisers. Furthermore, the new infrastructure allows us to achieve greater processing efficiency by increasing training speed and lowering per unit training costs. Turning to FinTech services. Despite the temporary COVID impact during the fourth quarter, we expect our commercial payment business will benefit from consumption recovery in China. This is evidenced by the strong rebound in our total payment volume growth since the beginning of 2023. On the top of macro recovery, our commercial payment business have been structurally benefiting from synergies with mini programs as a leading transaction platform in China with several trillion RMB of GMV in 2022, mini programs enables online plus off-line solutions for merchants to reduce transaction friction and drive repeated sales. As a result, the proportion of commercial payment volume contributed by mini programs has been increasing over time and has reached high-teens percentage level. In terms of new business development, we're well positioned to capture further opportunities in the FinTech sector as the regulatory environment in China normalizes. For wealth management, we're expanding our user base through investor education better services and a broadening product line. Consumer loans and online insurance services were exploring new opportunities through close cooperation with licensed financial institutions under a new regulatory framework. For games, we are now gearing up for global expansion. In domestic market, we navigated through industry challenges during 2022 and are now well positioned for reigniting growth. Our key franchises have demonstrated resilience and longevity. For example, in January 2023, Honor of Kings had its best-ever Chinese New Year period in terms of gross receipts, thanks to very successful launch of new content, top policy outfit as well as targeted offerings for players. In addition, Dungeon & Fighter delivered its strongest fourth quarter performance over the past three years, leveraging the success of game mechanics evolution to attract returning users. Furthermore, we are benefiting from normalization of BanHao approval, which enables us to strengthen our game releases for 2022 and beyond. Under the new industry norm, we are sharpening our focus on launching new games. In addition to titles in high-potential genres such as Undawn will bring to the market to new games combining popular IPs with our expertise in genres such as shooter and on chess. Meanwhile, we publish leading international franchises such as VALORANT and Lost Ark. In international markets, we have made strong progress in reinforcing our growth potential over the medium and long term. Our international games revenue for the fourth quarter increased to $2 billion representing 1/3 of our games revenue. We have expanded our top franchise portfolio as VALORANT goes from strength to strength with record users and revenue and as Miniclip acquired top casual game franchise Subway Surfers. Our emerging studios have achieved initial success in the new title launches, including V Rising by Stunlock and Darktide by Fatshark. For the next few years, we're building a strong pipeline to tap into multiple opportunities in the international markets. Notably, we're expanding our regional IPs into new platforms, markets and genres, such as VALORANT on mobile and Honor of Kings international markets. We're also supporting our emerging studios to launch bigger titles with greater longevity as well as bringing more highly acclaimed PC and console IPs to mobile devices. Turning to video accounts, which is a key strategic growth driver. Digital accounts continue to experience strong user engagement growth. In the fourth quarter, its total time spent reached 1.2x that moment. The number of videos with over 100,000 likes more than doubled year-on-year. We're now building on our user engagement in short fund videos to expand into live streaming services. Over the past year, we achieved rapid growth in live streaming services as we enriched our content and drove traffic to creators. In addition, we're gaining user mind share in live events. For example, over 190 million viewers watched the 2023 CCTV Spring Festival Gala, via live streaming on Video Accounts. To keep up with the growing demand for merchants to conduct transactions, we're enhancing our e-commerce capabilities that these improvements, is the launch of Video Account Shop, which offers seamless shopping experience to users. We are broadening monetization opportunities in Video Accounts capitalizing on the rapid expansion in store from videos and live streaming. Our live streaming tipping revenue experienced strong growth in 2022, in-feed ad revenue are ramping up rapidly and exceeded RMB1 billion in the fourth quarter. Furthermore, we're building infrastructure for live streaming e-commerce to promote GMV growth. Since the January of 2023, we have started charging commissions to develop a new revenue stream. To conclude the strategy section, I would like to share with you our perspective on artificial intelligence, specifically the implications of foundation models for Tencent. The most important takeaway is that we expect AI to be a growth multiplier for us going forward. We have a long-standing experience in developing and adopting AI technologies, which has already benefited many of our businesses such as advertising games, short-form videos and cloud computing. Recent industry breakthroughs and foundation models and consequently, in generative AI applications are very beneficial to us as our core social and gaming businesses are used to user-oriented and involve very premium content, which are hard to be disrupted by AI technology that can stand the benefit of being enhanced. On the other hand, foundation models facilitate our introduction of user to machine services such as digital assistant and search, which can become new growth areas for us. As for strategies, we have been developing our foundation model and plan to gradually roll out these models at the back end while introducing front-end use cases across our full product range. We are leveraging AI technologies to enhance our product innovation, monetization and operational efficiency. We believe that we have strength across the entire AI value chain because, first, we have a broad range of use cases for AI via applications with deep user engagement, including Weixin, our leading game titles, of office productivity software and our entertainment services. Second, with our long-term investment in machine learning, we have strong teams and deep expertise in technologies such as natural language processing and computer vision. Third, the breadth and depth of data accumulated in our businesses offer a strong foundation for our model training process. And fourth, Tencent Cloud is one of the leading cloud providers in China. The scale and sophistication of our infrastructure can support the growing demand for computing power from not only our in-house products, but also our client applications. Later on these competitive capabilities, we are rapidly advancing our proprietary foundation model, HunYuan, which has strong capabilities in Chinese language processing. And with that, I'll pass to James to talk about the business review.

Thank you, Martin. So for the fourth quarter of 2022, our total revenue was up 0.5% year-on-year. VAS represented 49% of our revenue within which the social network sub-segment was 20%, domestic games 19% and international games 10%. Ratio of international games revenue and real games revenue, which is seasonally higher in the fourth quarter, increased from 28% in the fourth quarter of 2021 to 33% in the fourth quarter of 2022, online advertising 17% of our revenue and FinTech and Business Services 33%. For value-added services, segment revenue was RMB70 billion, down 2% year-on-year. Social network revenue was also down 2% year-on-year to RMB29 billion. Revenue from music and game-related live streaming services decreased to our revenue from Video Accounts live streaming service increased driven by more paying users as we enriched our content offering and enhanced recommendation efficiency. Our video subscription revenue increased year-on-year driven by ARPU growth as we adjusted membership pricing. Video subscriptions decreased slightly due to content scheduling delays. In January 2023, we released a self-commissioned drama series Three Body, which became the highest rated domestic science fiction series in the past five years or the [indiscernible] review aggregator site. Music subscription revenue increased year-on-year. Paying users and ARPU grew as we offered additional membership privileges such as improved sound quality and enhanced user engagement in music genres. Domestic games revenues down 6% year-on-year to RMB28 billion, reflecting lower gross receipts in the prior quarters, which flowed through to lower revenue accruals during the fourth quarter. However, gross receipts in the fourth quarter increased year-on-year due to higher DAU and spending per paying user. International games revenue increased 5% year-on-year to RMB14 billion or up 11% executing currency movements and a true-up revenue adjustment right in the fourth quarter of 2021. Key franchises, VALORANT and League of Legends as well as new launches, NIKKE and Darktide contributed to the revenue growth. For Weixin, total user time spend has steadily increased through 2022, driven by growth in time spent for both chat and non-chat use cases. Among the non-chat use cases, the moments content sharing feature, which accounted for the majority of Weixin's non-chat time expense in the fourth quarter of 2021 remains the China leader in the social category with Moments time spent stable year-on-year in the fourth quarter of 2022. However, users have also diversified and expanded their non-chat activities within Weixin. User time spent in mini programs approximately doubled year-on-year in the fourth quarter, surpassing time spent in Moments as more users activated mini programs more frequently, especially content and productivity programs. And user time spent in Video Accounts more than tripled year-on-year in the fourth quarter also surpassing time spending moments. For QQ, we added Super QQ Show Avatar video chat provide fun lifelike interactive experiences. Utilizing motion capture technology, the avatars can mirror users facial expressions gestures in real-time during video calls. Mini World, the short-form video service within QQ, enriched its animated content games content and launched AI-powered video creation tools. DAU and time spent per user significantly increased year-on-year. Moving to domestic games. As Martin has already discussed, key games, such as Honor of Kings and Dungeon & Fighter have performed well in recent months. In February, we launched Undawn to tap into the emerging survival open bold crafting genre, featuring high-fidelity graphics and immersive experiences, Undawn ranks first by gross receipts among new mobile games released in China year-to-date. Looking at international games. League of Legends gross receipts increased year-on-year this quarter due to a battle pass creative outfit series tied into the well Championship finals. VALORANT MAU and gross receipts grew year-on-year as players responded to its new age of best of nine game mode. While PUBG Mobile gross receipts declined year-on-year, the rate of decline improved notably versus prior quarters on an easy effect and its innovative outfit designs appeal to players. Call of Duty Mobile celebrated its third anniversary with World Cup themed content New Battle Royale outplay and top-tier outfits, contributing to increased gross receipts. Among new releases, NIKKE was the first place title internationally by gross receipts among all new mobile games reached -- released in 2022. We recently added a PC version of the NIKKE. Warhammer 40,000: Darktide, a co-op action shooter PC game developed by our subsidiary Fatshark was ranked by Steam, amongst Steam's top new releases for the year. Moving to online advertising. Our advertising revenue of RMB25 billion in the fourth quarter, up 15% year-on-year. The assumption of year-on-year revenue growth was driven by demand for our Video Accounts in-feed ads and mini program ads upgraded performance from our mobile app network and an enhanced machine learning infrastructure, powering more effective matchment users and advertisers. By category, ad spend from e-commerce platforms, fast-moving consumer goods and game advertisers increased notably year-on-year. Our social and other advertising revenue for the fourth quarter was RMB21 billion, up 17% year-on-year. We experienced substantial demand for Video Accounts ads promising us to release more inventory and Video Accounts in-feed ads exceeded RMB1 billion in quarterly revenue. mini programs at revenue increased with higher adoption rewarded video format. And our mobile ad network resumed year-on-year revenue growth due to improved conversion rates and increased adoption of the bidding mechanism. Our media advertising of the fourth quarter was RMB3 billion, up 4% year-on-year. Looking at FinTech and Business Services. Segment revenue was RMB47 billion in the quarter, down 1% year-on-year and they were 5% quarter-on-quarter. FinTech services revenue grew slightly both year-on-year and quarter-on-quarter. Our average daily commercial payment volume declined quarter-on-quarter in the fourth quarter as COVID-19 outbreaks temporarily suppressed consumption activity, which has rebounded through a robust year-on-year growth rate quarter-to-date in the first quarter, benefiting from resumed consumption activity. The Business Services revenue declined year-on-year, while gross profit increased as we reduce loss-making activities, optimize costs and focused on our self-developed platform as a service offerings. Within Business Services, we're actively helping automobile manufacturers such as NIO, BMW and GAC Motor, enhance their IT infrastructure and product offerings in areas such as smart cockpit solutions, digital maps and data management. And now I'll pass to John for the financials.

Thanks, James. For the fourth quarter of 2022, total revenue was RMB145 billion, largely stable year-on-year. Gross profit was RMB61.9 billion, up 7% year-on-year. Net other gains was RMB85.8 billion last year flat year-on-year. This was mainly due to RMB106.6 billion gain from deemed disposal of [indiscernible] partly offset by impairment provisions on certain investees. Operating profit was RMB116.8 billion, up 6% year-on-year. Net finance costs were RMB3.7 billion, up 96% year-on-year. Year-on-year change was due to foreign exchange losses incurred this quarter which is gained in the fourth quarter of 2021. Share of losses of associates and joint ventures was RMB1.6 billion. On a non-IFRS basis, share probably was RMB3.1 billion versus a share of losses of RMB0.8 billion last year. This improvement reflects better profitability of certain domestic associates as a result of their cost optimization initiatives. Income tax expense increased by 18% year-on-year to RMB4.6 billion in line with higher profit and increase for food tax provision. IFRS net profit attributable to equity holders was RMB106.3 billion, up 12% year-on-year. Diluted EPS was RMB10.977, up 12% year-on-year. Now I'll share our non-IFRS financial figures. For the fourth quarter, operating profit was RMB39.4 billion, up 19% year-on-year. Net profit attributable to equity holders was RMB29.7 billion, up 19% year-on-year. Diluted EPS was RMB 3.042, up 19% year-on-year. Moving on to gross margins. For the fourth quarter, overall gross margin was 42.6%, up 2.5 percentage points year-on-year of segment. Gross margin for value-added services was 49.8%, up 1.1 percentage point year-on-year. Year-on-year margin increase was last year driven by a favorable shift in revenue base. Gross margin for online advertising was 44.2%, up 1.5 percentage points year-on-year. The year-on-year margin was mostly due to strong demand for Video Account in-feed ads which led to a faster growth in revenue competitive cost. Gross margin for FinTech and Business Services was 33.6%, up 6.5 percentage points year-on-year. The year-on-year margin improvement was driven by our cost rationalization and the efficiency improvement as well as lower cloud project deployment costs as we scale back loss-making activities. On operating expenses, selling and marketing expenses was RMB6.1 billion, representing 4.2% of revenues. This reflects a decline of 47% year-on-year due to tightened spending on marketing activities across our organization. R&D expense was RMB15.9 billion, up 14% year-on-year as we continue to invest in strategy areas in both domestic and international markets. G&A expenses, excluding R&D, was RMB11.4 billion. The year-on-year increase was mainly driven by higher expenses increased by some of our overseas subsidiaries. As at quarter end, we had approximately 108,000 employees, down 4% year-on-year or broadly stable quarter-on-quarter. Let's look at our operating and net margin ratios. For the fourth quarter, our non-IFRS operating margin was 27.2%, up 4.2 percentage points year-on-year. Non-IFRS net margin was 21.1%, up 3.2 percentage points year-on-year. Let's discuss earnings per share and dividends. For 2022, IFRS basic EPS was RMB 19.757, diluted EPS was RMB19.341. Non-IFRS basic EPS was RMB12.13, diluted EPS was RMB11.835. On the 16th of November 2022, we announced a special interim dividend in the form of distribution of Class B of Meituan shares. Subject to the shareholders' approval at the upcoming 2023 AGM, we are proposing an annual dividend of HKD2.4 per share, up 50% year-on-year. Our annual dividend will be payable to shareholders on the fifth of June 2023. To conclude, I will highlight some key cash flow and balance sheet metrics for quarter four. Total CapEx was RMB5.7 billion, down 52% year-on-year. Within total CapEx, operating CapEx was RMB1.9 billion, down 76% year-on-year or up 80% quarter-on-quarter. The year-on-year decline reflects our efforts to reassess title spending. The sequential increase was mainly driven by higher CapEx and servers in the fourth quarter. Non-operating CapEx rose by 4% year-on-year and 184% Q-on-Q to RMB3.8 billion. The sequential increase was due to additional expenditure on office buildings. Free cash flow for the quarter was RMB23.1 billion, down 31% year-on-year. The year-on-year decline was mostly due to lower operating cash flow, partly compensated by decreased payment for CapEx and media content due to cost optimization. Net debt position was RMB14.8 billion compared to RMB27.3 billion in the previous quarter. The sequential improvement in our net debt position was due to our free cash flow generation partly offset by payments for the repurchase of pension shares. Thank you. A - Wendy Huang: Thank you, John. We shall now open the floor for questions. [Operator Instructions] The first question comes from Kenneth Fong from Credit Suisse.

My first question is about advertising recovery trend with macro improving and our algorithm and ecosystem upgrade driving higher ROI. How should we think about the pace of a recovery over the next few quarters? In particular, which are the key verticals that you see a stronger performance that we are gaining share and which verticals, which is generally weaker. And my follow-up question is on the global AI race and the ChatGPT product learned by our peers globally and domestically. Management just shared some competitive strength for Tencent. Would you mind share more about the opportunities use cases, such as for AIGC, online game and cloud products, et cetera, in particular, with high computing power, GPU being the constraint, how should we think about the product priority, either on the 2B side or the 2C side? And how should we think about the pace of our financial benefits over the next few years.

Thank you for the question, Kenneth. I'll take the first one on the advertising outlook and on specific advertiser categories. So in terms of the overall outlook, we believe the advertisers generally cautiously optimistic on a China consumption recovery this year. In more detail, companies that sell low ticket price items seeing a broad-based recovery already. For companies that sell higher ticket price items, it varies category by category, but they're all aware that China consumers have built up substantial excess savings in the past three years. And so at some point, there will be the opportunity to tap into those savings. There's also some factors that are benefiting Tencent in particular. We see there's great demand to advertise in the short-form video format to consumers who previously weren't reached but in short form video format. And from that perspective, our Video Accounts are highly appealing because many of the viewers video accounts are not viewers [indiscernible] other existing short-form video services. We see a great desire among certain categories of advertisers, for example, luxury products to advertise in format where they actually own the relationship with the consumer as opposed to being intermediated. And so for those advertisers, the mini program inventory is very attractive. And then also as we see the broader economy turning around, there are certain advertiser categories who are extremely price sensitive. And for those advertises, our mobile ad network that has very low revenue per thousand impressions is a natural destination for spending. In terms of advertiser categories, then we mentioned in the prepared remarks that we see a particularly robust contributions from e-commerce platforms from fast-moving consumer goods from games. And I think part of that is macro, part of that is more company specific. So for e-commerce, we see some big e-commerce companies who used to advertise less on us in the past have become much more active in recent months. The games because of the popularity of mini games within Weixin, there's been increased opportunities for app-based game companies to reach people who are already playing a different kind of game. And then for fast-moving consumer goods companies, they find the click-to-purchase opportunity within Weixin inventories are highly effectively aligned with their needs. So that's on the advertising question.

Now in terms of the ChatGPT and AI, I think in our prepared remarks, we did talk about our thinking, and I'll highlight a couple right now. The first one is -- we do believe that this is a growth multiplier for us. And the reason is because our business is actually primarily in the social and communication and gaming business, which means that it's primarily user-to-user and it's involved very high-quality content. And as a result, these are businesses which can be supplemented by these generative AI technologies and the foundation model technologies, but they are not necessarily that easily disrupted by such technology, not like the user to machine experience like search. And as a result, the strategy that we'll be taking is that we'll definitely be investing a lot of resources in building our foundation model because we feel that this is something which will add to each one of our business lines in the future. And at the same time, it can actually also help us to launch new businesses going forward and take out strength from user to users into the user to machine arena. And our strategy is that we will try to do it right rather than do it in a rush. We want to make sure that the foundation of the foundation model is actually built correctly and on solid footing. The first release in our view is actually one of the many iterations that we will be launching. So it's a long-term game, and it involves a very iterative process. We also believe that chatbot is one of the many applications that we'll be launching going forward. So it is a business opportunity that we can actually build over time and not a business threat that we have to tackle immediately. And that actually allows us to be able to focus our resources, but at the same time, build our capabilities and build our models in a sustainable way. And we do believe we have a lot of competitive capabilities to build it right. As I've mentioned, web use cases, we have data. We have a very strong cloud computing infrastructure, and we also have a long-standing history of building AI applications to supplement our existing businesses. In terms of the infrastructure, we do have enough and required amount of chips to actually create the model. That's not a problem. And more importantly, we felt we actually have a very strong cloud business and the relevant technology is to really arrange and make use of the chips in a scalable and high-density way so that we can create very large clusters of chips that can really deliver the performance that's needed to train these very large modules, especially when the models get more and more sophisticated over time after a few iterations. In terms of the commercial prospect, I think as we have alluded in our prepared remarks, it's a growth multiple. So that means it will improve our existing businesses along the line of improved monetization. Imagine advertising can be actually improved with the generative content, which is highly targeted to the users that can be very, very effective in conversion. It can actually increase efficiency, imagine a lot of our content platforms and content business can actually make use of these tools to generate content for both the creators as well as for ourselves on a much more cost-efficient basis and the user experience can be much more engaging. And at the same time, I think, as we said, we also -- we look at new business opportunities and for these new opportunities, I think the business models will probably evolve over time, just like in the history of Internet. You, first of all, create something that's useful. And over time, you think about the right business model. But without this is actually a very exciting opportunity for us.

Next question is Alicia Yap from Citi.

Can you hear me okay?

Yes.

Good evening, management. Thanks for taking my question. Two questions. Number one, related to your cloud business. Can management share more details on whether the strategic shift of reducing the lower margin business largely behind us? And is that fair to assume that we will see growth gradually normalizing with faster rebound of the business and higher margins in the second half of this year? And then second question, just a follow-up on the AI. So do we have any plans to incorporate this generative AI technology into Weixin and also the QQ app in the coming future? And how would the foundation model convert to the higher revenue growth opportunity?

In terms of cloud, I think you actually have answered your questions pretty well, right? I think the optimization shift is largely over. It's a pretty painful process. But after the entire effort, I think the business is actually in a much more sustainable and much higher quality state. And yes, we will see more with the business coming into the right shape, we will see normalizing growth and now it's time for the business to push for higher growth. And after the strategic shift, I think we now have a business that has an organization that's much more focused, nimble and efficient. We have a product mix that is focused on high margin, high value add as well as self-developed and recurring revenue. And at the same time, I think the operational procedure of the business has been improved in that we are much more capable in managing the cost for the highest part of the business as well as delivering better services to our customers. So I think the quality of the overall business has improved, and we're now in the right mode for pursuing higher growth, especially for the second half 2023. Now in terms of the generative AI, it's definitely natural, right, for us to incorporate some of these technologies into our flagship products like Weixin and QQ and we can actually improve the efficiency of the user experience. For example, we can actually allow mini program developers to develop mini programs at a much faster rate with these generative AIs. So that's in the category of content generation and we can also improve our customer service for our flagship products, so that each one will have a customer service assistant behind, right, these are all possible. And at the same time, if you think about on the front end, if there is a very good chatbot service that we develop, then we can easily incorporated intuition in QQ so that it enjoys the large distribution and customer reach of these platforms. So there's a lot of possibilities going forward, and that's why we call it a growth multiplier for us.

Next question comes from Robin Zhu from Bernstein.

If I may have -- my first question on live streaming e-commerce. I mean if I look at some of your peers, this is typically quite an ops heavy business in terms of having teams doing whether it's customer service, logistics, things like that. Tencent has historically not done ops heavy businesses as much. Would love to hear some of your thoughts on whether that's a new direction that the Company plans to head and what that implies in terms of headcount or kind of investment in that direction. And then another follow-up, if I may, on AIGC and so on. We've seen OpEx as a whole decline now for a couple of quarters. Would love to hear your thoughts on how that sort of into place with some of the new investments, whether it's AIGC, whether it's overseas gaming? Are we at the point of peak cost cutting? Or does management think there's more room to go in the coming quarters given the costs associated with these large models.

Thanks for the question. In terms of live streaming e-commerce, we do believe this is a good opportunity for Video Accounts to develop over time. But I actually emphasize the word over time. So we -- our plan is actually to grow it on a consistent measured and high-quality basis. So it is true that in e-commerce business, you actually need to have heavier life operations. But -- and we do intend to put in a heavier life operation to support this. But at the same time, we emphasize one that it is actually profitable, right? So even if you put in the live operations, the cost is going to be small compared to the potential benefits. But more importantly, the way that we're doing it will be, I think, much more thoughtful, much more efficient in the sense that we will try to focus on the high-quality merchants and high-quality product categories, which means that the lineups associated with these would be actually less because a lot of times, the live ops is actually focused on solving problems. And when we actually focus on high quality, the problems will be fewer. We'll be much more focused on creating tools so that a lot of these live ops can be actually executed by tools. And as a matter of fact, AIGC will be very helpful in that regard. And if we want to grow it in a very, very fast manner and maybe you just have to load in a lot of people. But if we actually sort of stretch it over time, then we can actually build the tools to make our operations more efficient. And we'll also leverage on our existing infrastructure such as mini programs, such as existing brands who are already selling on our mini programs to make sure that we know these merchants. And as a result, the amount of live operations will be actually less and more efficient. So that's sort of the way we are going to tackle the problem.

And Robin, I think your second question was around where we are in the cost management cycle and specifically whether overseas game investments or AIGC investments will cause substantial upward pressure to our cost base. So we believe we'll be structurally more disciplined and cost-conscious going forward than we've been in the recent past. And we don't think that either of the factors you've identified to change that trajectory. In terms of the international games, then we have very clearly been investing and, in fact, acquiring studios through that the slow period in the last 12 months. And those investments are paying off quite nicely. You can see that our international game business is now half the size of our China game business and we've had a number of successful international game releases, both from bigger, better established studios such as Riot, VALORANT but also from small up-and-coming studios such as rising from V Rising from Stunlock. So we'll continue investing in international games, but that's a business-as-usual investment. It's not a disruptive new investment from our perspective. On the AIGC, then, as you're probably aware, it is not the provision of AIGC itself that is costly. If you look at a service like Discord that actually is already profitable from distributing AIGC service mid journey for creating graphics. Rather it's the decision to build the large language model that powers the AIGC that is capital intensive. And the capital is not so Microsoft has stated that their large language model several 100 million jobs to build out. However, the nature of the cost is very different from the nature of costs that China Internet was facing. One to three years ago, meaning that one to three years ago, most of the cost heavy projects that we and our peers in China Internet were engaged in are actually projects where the costs scale with the number of users we have. So if you decided to get into community group buying, then the more users you had the greater your at cost base was. Large language models are different as a fixed cost or a table stakes for being in the game, which is the CapEx that Microsoft referred to. But then that is the majority of the cost at least in the near term price generating revenue. So we're absolutely embarked on bearing that fixed cost. And if you compare that fixed cost with our revenue, you can see it's a sizable number. But it's not a number that has very dramatic consequence of strong margins. And every other company that wants to build live-language models, whether they're larger than us or smaller than us, will have a cost that's somewhat similar in absolute fixed terms. So this kind of fixed cost is kind of cost, we think, is a more desirable cost because it is fixed as opposed to something like the subsidies where the more users you have, the cost you bought, which in naturally disadvantage to us as the Company with the most users.

And also bear in mind that a lot of the cost is actually a hardware cost, which can be amortized over a few years rather than you're spending for the year.

Next question is Alex Yao from JPMorgan. Alex, your line is open. Maybe...

Can you hear me okay?

Yes, we can hear you now.

Yes. Sorry, I was on mute. I have a few follow-ups on the prepared remarks. The first one is regarding FinTech. I think this was a less of a discussion for future growth area in last year probably because of the regulatory environment change, but I noticed that you guys started to talk about FinTech as one of the key future growth drivers in this prepared remarks. So can you share with us your thoughts on FinTech development strategy in a new regulatory environment? And the second one is on Video Accounts monetization. Can you share with us a bit more feedback on the monetization progress so far in addition to the quarterly revenue of RMB1 billion, for example, what's the ad load, what's the advertiser feedback? And how do you think about the monetization pace in the coming quarters?

In terms of our FinTech strategy, right, I think the situations that we have been through a process of regulatory scrutiny in which the authorities have taken a very good look at all our FinTech businesses and provide a lot of guidance as to how the business should be adjusted in order to be both compliant with the regulations and regulatory direction as well as complying with what the intention of the regulators are. Through that process, we have also explained very carefully the way we conduct our business, right, which is actually compliant with regulation, which is very focused on risk management, which is very focused on value creation for the users and also focused on working with a lot of licensed financial institutions. And through that process, I think we have adjusted our FinTech businesses to be even more compliant with the regulatory direction. And at the same time, I think the regulators have actually got a better understanding of our FinTech business as well as FinTech strategy. And I think the top regulators have already made the remark that there's going to be a normalized regulation for FinTech business going forward. And through that process, I think our FinTech business actually continued to grow on a consistent basis. And that's points to the strength and the quality of the business itself. And going forward, without our FinTech business, we'll continue to expand alongside with the macroeconomic development of the economy as it's a very important provider of support to consumption and to merchants activities. So that's number one. And number two, we felt the basic take rates of our FinTech business will remain stable, but we would, over time, think about ways through which we can roll out value-added services to allow merchants to have better conversion rates to give them tools so that they can manage their businesses more efficiently. And in those cases in which we can actually generate better value for the merchants, then we can actually share a little bit of the value creation and that would provide additional monetization mechanism for us. And thirdly, in terms of financial products that's tied in -- that can be developed, such as wealth management, such as loans, such as insurance over the longer term, we felt that there's also opportunities if we can actually develop these businesses in a cautious way in a complied way with a very high focus on risk management and at the same time, with more focus on working with the existing licensed financial institutions. So we feel that there is a good prospect for our FinTech business going forward.

And in terms of the Video Accounts monetization, Alex, so the advertising load factor, it's a very light ad load both compared to other tens of properties and also even more so compared to the big incumbent short video services. The advertiser feedback is very positive. And I say that both from a quantitative perspective, but also quantitatively, that the revenue per 1,000 impressions that we achieved on Video Accounts ads following a substantial increase in the previous months is actually superior to the revenue per 1,000 impressions achieved by Weixin Moments and substantially superior revenue per 1,000 impressions achieved by the two short-form video incumbents. And then in terms of the growth trajectory, if you compare it with Weixin Moments, Moments was more of a sort of step change model of expansion and then consolidation and then expansion then consolidation because with Moments, we will be fairly programmatically periodically increase the maximum number of ads that a user can see from one to two to three and so forth. Today, with the Video Accounts, it's much more dynamic and therefore, sort of progressive continual expansion. And one of the reasons we can do that now is because of the much more powerful machine learning infrastructure we have at the back end supporting our ad technology and our ad systems overall. So while the growth in Video Accounts be frontend is very impressive. And you can see it simply from the added inventory, a big part of the turnaround in our advertising revenue is what we're doing at the back end with the machine learning infrastructure.

We will take the next question from Ronald Keung from Goldman Sachs.

Martin, James, John and Wendy, I want to ask one question on games. I think we haven't touched on that so far and second on WeChat video accounts on time spent. So for games with the approval mostly normalized, how does management see the outlook for domestic games this year, particularly this year of a reopening, but yet with a low base last year? And after the kind of strong January with the seasonality in January, Feb, how is the grossing trending for a cleaner month like this month and especially for your legacy titles? And then my second question would be on Video Accounts time spent. So how is our time spend trending that with previously, I think we've shared around the 30 minutes or so versus the other two players typically at a longer time spend. So on that, do we see time spent and ad potential kind of tie together or we actually could have a higher return even more purpose-oriented and live stream sessions that could come. So would our ad scale gradually kind of reach the moment ad revenue scale that we mentioned before? And when should we expect a potential reaching of moments at scale for our video accounts?

So for our domestic game business, then overall, we're quite optimistic. We've begun the year in good shape, and that trajectory is so far very healthy. You asked specifically about the low base dynamic versus the reopening dynamic. Now the reopening dynamic is something we've looked at a great deal because we're in the unusual position of operating very big, somewhat similar games in the Western world as well as in China and other geographies. And so, we can actually look at how reopening plays out of games in those different geographies. And what we see is that the reason why in Western economies, there has been a roughly one-year hangover period for the game industry post COVID is because in those Western economies, the majority of the population was working for home for a period of many months. And that process of most of the population working from home for multiple months did create a high engagement base and monetization base, which the Western game industry is only now emerging from. On the other hand, in China, there was no phenomenon of the majority of the population working for many months in their individual cities where people work from home for two weeks or in some cases, two months. But those were sporadic and scattered, and the impact has diminished because it was spread out over 3 years and concentrated over 1.5 years. So at this point in time, we don't see a reopening headwind for our game business. And I think it's possible that we won't see one given the unusual nature of the COVID outbreaks work from home behavior in China.

Now in terms of Video Accounts, it is still true that the average time spend per user is actually much lower than the incumbents on short video. But the number actually has been growing consistently. And this is sort of part of the driver of why the total time spent on our Video Accounts has been growing quite rapidly, and now it's at 1.2x of Moments. And the driver of this increase in average time spend is our -- as our recommendation algorithm continue to improve and as the size of our creative community and the amount of high-quality content continue to grow, then we have much more ability to make our users spend more time on the content. And in terms of the average time spent, of course, it reduces total time spent. And as a result, it reduces the total amount of advertising dollars. But I don't think the average time spent per person actually would necessarily reduce the monetization per unit time. As a matter of fact, if somebody actually spend 30 minutes on the platform versus if somebody spends 150 minutes on the platform, the first 30 minutes probably would carry higher value per unit time compared to the latter number of minutes. So we actually feel pretty comfortable that we have a good revenue generation opportunity here. From the amount of time that we right now have, the monetization is actually relatively light. And as we continue to grow the total amount of time, than the potential for more advertising dollars would actually continue to increase.

Next question is Will Packer from Exane BNP.

Firstly, since the last earnings call in November, we've had the two sessions and some other regulatory news flow. Could you update us on any developments in the domestic regulatory backdrop? Specifically, could you comment on the implications of video games shortfall video and the Financial Services segment? And then as a follow-up question, could you update us on your current capital allocation thinking. Are you considering further stake monetization via distribution or sales during 2023? And on the other hand, are you -- how are you thinking about your third-party investment priorities many times?

On the regulatory update, we previously talked about regulatory direction is actually trending towards supporting healthy development of our industry and completing the ratification and also going forward, carrying out normalized regulation. We believe this trend continues based on recent supportive remarks from top years. For example, the president in the recent CPPCC meeting remarked that government supports healthy and high-quality development of the private sector. He mentioned supporting platform companies to show confidence in creating employment, driving consumption and international competition. Premier also highlighted a private sector, we have a significant potential in the China economy and the government's report also reiterated to practice normalized regulation and also facilitate the healthy development of the platform economy. So overall, the trend continues. And in terms of specifically on the different segments that you talk about in the area of games, we can see the most tangible positive development as the game barn-house approved on a more regular basis, illustrating that the industry regulation is indeed normalizing. We have received six funhouse, so far for the year of 2023, including imported [indiscernible] mention this week. And then if you look at short video, I think the regulation is broadly stable, right? If there's one potential issue, it probably may be on the time spent per user is actually very high. But if you look at our platform, the time spent per person is actually way below industry standards. So, that even as an issue is probably not going to be that much of an issue for us. In terms of the financial services, we do believe that there is also a normalization trend. Having said that, right, I think we are still -- would be going forward, continuing to place very high emphasis on compliance, on the responsibility as a platform and also on proactive communication with regulators. So that's the update on the regulatory side.

And then in terms of capital allocation, Will, so on the capital return front, we're very active. We'll be sending out the Meituan distribution in kind in the next two days. We announced today we'll be increasing our regular annual dividend by 50%. And previously, when we were an open trading window, we were buying back shares most days. And so we're very busy. I wouldn't say I'm personally busy mainly on maybe on checks. But collectively, as an organization, we're busy on the capital return front. In terms of investing capital in other companies, then looking domestically at China, where we're actually quite optimistic given what we see on China consumption. We can't forecast how the market will value companies, but we can see what China consumers are doing, which is becoming more active. And we ourselves have therefore become more active in terms of making investments in small, early-stage privately held companies in interesting growth areas in China. Internationally, the environment is obviously extremely dynamic and we're being very selective, but also seeking to be opportunistic. So that's on turning happen and on investing capital.

Next question comes from John Choi on Daiwa.

Thank you, management for taking my question. I have a question on your international game opportunity. I know that I think on the prepared remarks, management did lay out a few things such as expansion of Origin IP, new titles for merger studios and bringing top PC consoles to mobile. But considering that if you look at the global gaming market itself is also growing at a much slower pace. Which drivers do you think will be important for our international game business? Can you kind of give us a priority of where the investments will go through? And what kind of growth that we should be expecting over the longer term period? And just a quick follow-up. As we could see from the recent more scrutiny from other social network platforms elsewhere on the geopolitical reason, do we see any risk on our gaming business as we continue to drive internationally?

So in terms of the international game opportunity, we don't think it's stuck in slow growth mode. We think that the last year has been a transitional period because of the hangover from the work from home phenomenon that I discussed earlier. But we're actually structurally very positive about the game business globally, including internationally. And there's obviously been a number of games whether it's Call of Duty this year or Elden Ring or Harry Potter that have been phenomenally successful both in the traditional premium game module as well as increasingly in the game as a service model. So, our market share of the international game market is still only in the mid-single-digit percentage. But we think that we have certain structural competitive advantages that we can bring to fair including the sort of the development capabilities from China, including the fact that if we're at the forefront of trends such as multi platformization such as shifting to game as a service rather than a premium game model and therefore, both the China game industry in general and then Tencent within that are well positioned to increase their market share of the global and the international game industry over time. And our focus is around those areas. It's around developing great games, particularly games that have a long life and those could be more player versus player games that are similar to physical sports or they could be more content-driven player versus environment games that are more in the nature of storytelling, but, we're building up our capabilities in both kinds of games. And then in operating those games effectively. And operating games in the games as a Service era involves much more continual hands-on support than publishing games in the premium game era. But we're reinvesting to be good at both developing and operating good games. And if we do that, we think we can continue to pre-pub our market share in this very big $150 billion plus international game month. On the geopolitical front, then everything faces some degree of geopolitical risk. I think that the risks faced by the game industry dissimilar to the risks faced by social platforms that you alluded to for a few reasons. One is that games generally you're not seeking to collect data on individual users and then optimize that users experience based on a very sort of targeted data. You're interested in collecting scale data on a large number of anonymized users, but you're not following the behaviors of individual actors. And in addition, with media platforms, that there's concern around the content that's distributed, particularly the news content that's distributed to uses with games, you don't have new content that's distributed to users, PEOPLE who don't go into a video game if they want to watch CNN. So while I wouldn't say that games absent from geopolitical risk, I think the nature of concerns around games is different from the nature of the concerns around intermediate platforms or social platforms.

Next question comes from James Cordwell from Atlantic. James, your lines is open.

I actually wanted to go back to Alex's question on the FinTech business and try to get a little bit more detail, if I may. Two parts. Just first of all, looking nearer term. Would you say the double-digit quarter-to-date growth you described in the release represents a fully recovered growth rates? And if not, what kind of level should we expect from that business once it is fully recovered? Or maybe if there's any color on what you've been seeing in March -- in the month of March? And then secondly, looking a little bit longer term. You detail in the release some of the other initiatives you're investing in within the FinTech area to augment growth. So I was wondering if there's any kind of framework you could give us as to how much our FinTech growth in the next couple of years will come from volume. How much might come from increasing take rate and how much will come from the value-added offerings you described?

Well, in terms of the growth rate in the fourth quarter, the number is actually against -- the number we put is actually against January and February, which is if you think about 2022, those two months were actually relatively normal period within the COVID period. And then starting from March, April those are sort of the more disruptive times. So it's actually a tougher comparison from a number perspective for January and February and then easier comparison when to step into March and April. So that's sort of the nature of comparison. And I would say, in general, when our payment business is actually sort of new as big as it is, then it grows pretty much with consumption. And so I would say double digits is actually pretty good growth rate. Now in terms of the areas that drives growth, I think I actually explained this quite a bit already, which is -- now our volume would grow, but that would be alongside with the consumption. And in terms of take rates, I don't think we want to increase the basic tax rate because we felt if there's any additional gain that we want to make, then we should be making it from value creation. So we'll be very focused on saying, oh, if we're actually serving these merchants and helping these merchants to cover the customers, how can we actually help the merchants to make their transactions easier, right? For example, if they actually making transactions over our lead programs and there are ways through which we can actually make the conversion better. There are ways to which we can actually help them to increase their ticket size. And when we actually do these things, which are value-added to the merchants, then I think it's fair for us to charge a certain monetization for the value creation, a part of the value creation that we are making for them. And in terms of additional drivers of growth, it will be coming from the financial products, right? When we are offering our loan products and when we are offering wealth management products. And over time, we offer insurance products that would help our users and our merchants to be served better and when we offer these products, which are in conjunction with licensed financial institutions, which is completely compliant with the existing regulatory framework that we actually can generate more revenue from. So that's the way we think about our FinTech business.

We will take the last question from Thomas Chong from Jefferies.

Thanks management for taking my questions. I have a question regarding on the margin side. Given that on the top line, we have a lot of opportunities ahead. On the OpEx side, we are seeing the sales and marketing expenses made a very good job on a sequential basis. So just want to get some color with regard to the margin outlook in 2023 and whether the OpEx in Q4 can be used as a basis a benchmark going forward? And my second question is really about the consumer behavior post pandemic. Any color that would affect our business or incremental to our business segments can be shared, would be grateful.

Yes. In terms of the margin, while we don't provide guidance, I would like to share with you some bit pieces. As you understand, approximately half of our revenue across contribute and benefit from China economy activity. And our business has stayed resilient when facing macro challenges, and we are well positioned to benefit from the economy. On a holistic basis, we have been seeing positive signs in January and February for games payment and advertising, a point reopening. So we can assume that for some of our services on a margin basis, there's some room for improvement. And of course, when you look at some of our segments, just like online advertising, there might be substational fluctuation and margin change although should show positive on a year-on-year basis in 2023 due to industry recovery and growing contribution for higher-margin Video Accounts in-feed ads. And in terms of the expenses, I think Martin and James discovered a little bit, but I'll just elaborate a little bit more. Promotion and advertising inside the selling and marketing has already increased by 40% year-on-year for the whole 2022. And I would say that this has already been pushed to a very low base. So we expect that expenses may notch up with new business opportunities, for example, new games, but we are very focused on as opposed to, well, in the past, so it will be increasing a more disciplined way. And for R&D, it increased by 18% year-on-year in 2022. And while we will continue to invest in strategic areas just like games and AI, we expect R&D to increase, but the growth rate would be more moderate say, for instance, as Martin has explained earlier, even for AI investments, a lot of the investment is in form of service, which is the cost of which will be amortized over a period of four years and so the impact on that material. And going to the one another big item, which is the staff force. It grew 16% year-on-year, while the head count dropped by 4% despite there were a few thousand additional headcounts from graduates and another 2,000 from newly acquired subsidiaries, we expect headcount to grow but remain disciplined and at a measured place in 2023.

Great. So in terms of the consumer behavior, we have a couple of lenses, including in a TenPay activity, including mini program transactional activity. And what we see is generally quite positive. There's obviously some nuance. And so as I mentioned earlier, low ticket price items are selling better. Certain high-ticket price items like cars, not but certain other high-ticket price items also selling better. In terms of off-line versus online, then there's a sharper, both are growing, but there's a more pronounced turnaround offline because offline was more impacted last year, particularly in -- early in the second quarter last year in late in the fourth quarter last year. So the margin, the pickup is more pronounced to offline and online. But overall, a broad-based consumption recovery that we're seeing flowing through to us in terms of our payment volumes and revenues in terms of our mini program activity and revenues in terms of our advertising activity and revenues.

Thank you for all the questions. We are now ending the webinar. If you wish to check out press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also be available soon. Thank you and see you next quarter.