Catherine Chan – IR Pony Ma – Chairman and CEO Martin Lau – President James Mitchell – Chief Strategy Officer John Lo – CFO

Erica Poon - UBS Natalie Wu - CICC Eddie Leung - Merrill Lynch Alex Yao - JPMorgan Dick Wei - Credit Suisse Chi Tsang - HSBC Alan Hellawell - Deutsche Bank Cynthia Meng - Jefferies Wendy Huang - Macquarie Alicia Yap - Barclays Miranda Zhuang - Mizuho Securities

Thank you for standing by. And welcome to the Tencent Holdings Limited 2014 Fourth Quarter and Annual Results Announcement Conference Call. At this time all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Ms. Catherine Chan from Tencent. Please go ahead, Ms. Chan.

Thank you very much, operator. Good evening. Welcome to our annual results conference call for 2014. I'm Catherine Chan from the IR team of Tencent. 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 future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. The presentation also contains some unaudited non-GAAP financial measures that should be considered in addition to but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of the risk factors and our non-GAAP measures, please refer to our disclosure documents downloadable on www.tencent.com/IR. Let me introduce the management team on the call tonight. We have our Chairman and CEO Pony Ma, President Martin Lau, Chief Strategy Officer James Mitchell, and Chief Financial Officer John Lo. Pony will kick off with a short overview, Martin will discuss strategic highlights, James will speak to business review and John will go through the financials before we take your questions. I'll now turn the call over to Pony, please.

Okay, thank you, Catherine. Good evening, everyone. Thank you for joining us. During 2014 we made significant progress in a number of strategic initiatives that reinforces our platform leadership and enhanced our competitiveness. We achieved a major breakthrough in the following areas. In social, we built a vibrant ecosystem connecting users with a range of content and services through Weixin and QQ, supported by content partnership and strategic investment. In games, we became the leading mobile games platform in China and reinforced our leadership in PC games with healthy growth. In media and advertising, we became the top mobile destination for news in China and our video platform grew traffic and revenue over 100%, year-on-year. In security, we expand our market share of security software. In app store, YingYongBao's market share reached 26% market share in China, up from 14% a year ago. In payments, user bound over 100 million Weixin and QQ account to bank account, facilitating easy pay – easy mobile payment. Our affiliate, WeBank, received a bank license, positioning us a better cooperator with existing banks in providing online financial services. At the same time as we focused on these strategic initiatives, we also achieved healthy financial results. For the fourth quarter of 2014, total revenue, excluding eCommerce transactions, was RMB20.5 billion, up 50%, year-on-year. Non-GAAP operating profit was RMB8.1 billion, up 59%, year-on-year. Non-GAAP net profit was RMB6.7 billion, up 51%, year-on-year. For the full year of 2014, total revenue, excluding eCommerce transactions, was RMB74.2 billion, up 46%, year-on-year. Non-GAAP operating profit was RMB30.5 billion, up 49%, year-on-year. Non-GAAP net profit was RMB24.2 billion, up 43%, year-on-year. Turning to our key platform metrics, total MAU for QQ was 815 million, within which smart devices MAU grew 33%, year-on-year, to 576 million. Weixin and WeChat reached combined MAU of 500 million, up 41%, year-on-year. Total MAU for Qzone was654 million, within which smart devices MAU rose 30%, year-on-year, to 540 million. Our online games platform extended its lead on PC and mobile. For immediate platforms, our PC portal and mobile news app combined made us the largest online new platform in China. We solidified our position as the top video platform with rapid traffic growth due to exclusive content and producing popular in-house programs. For our utility services we enhanced our competitiveness in mobile security, mobile browser app distribution saw improvement in core features. I now invite Martin to share with you our strategy highlights.

Thank you, Pony, and good evening, everybody. In 2014, we launched our connection strategy that uses Weixin and QQ to link appropriate content and services to users' everyday lives and thus expand the scope of our opportunities. We believe we are very well placed to execute this connection strategy because, firstly, our platforms are leaders on the mobile Internet, which is much more closely tied to daily life than the PC Internet. \ Secondly, hundreds of millions of users logged in to our platforms every day, sharing content with their friends. Thirdly, our users come back to our platforms repeatedly throughout the day. And, fourthly, our partnerships really allowed us to deeply integrate with best-of-breed providers of relevant content and services. As a result, we believe this connection strategy would benefit users, our partners and Tencent. Users can benefit because they can access a rich mix of content, services and transactions with a unified login and integrated payment solution. Our partners can benefit from connecting to our users through our platform targeting capabilities and benefit, again, from our users recommending their products and services virally to each other, and Tencent benefits from deeper user stickiness, as well as expanded advertising and payment opportunities. A core part of our connection strategy is built around partnerships. During 2014 we built out a range of strategic partnerships, adding valuable services and content for our users. On the investing side, we believe that providing the best eCommerce and offline to online experiences frequently requires deep domain knowledge, as well as large and specialized workforces. As a result, we have invested in a number of companies that possess these attributes, including JD.com, WUBA, Dianping, Dididache and others. We contribute to our investee companies success by introducing them to new users, helping them managing existing user relationship using our CRM tools and also facilitating transactions via our payment solutions. On the content side, we believe that the value of strong IP content is appreciating over time, as consumers become more discerning and piracy becomes less widespread. Because of our large user base and our long-term dedication to IP protection, we're a partner of choice for content providers. During 2014, we have formed exclusive relationships with a range of brand name IPs, including NBA, HBO, Voice of China, Warner Music, Sony Music, as well as a number of key online games. By tapping our partner’s resources for key eCommerce O2O and content, we can actually focus Tencent's resources on developing a selective set of owned and operated platforms. This renewed focus allowed us to gain significant traction in some competitive product areas. For example, in the video area our expanded IP catalog together with internally produced content, coupled with better use of our mobile distribution capabilities, have accelerated our user growth. In January of this year, we became the most popular mobile video service in China by daily active users. For online reading, we have pooled the resources of several destination sites to create a unified platform for literature and book content. This platform enjoys multi-year exclusive relations with a large number of leading authors to provide a healthy content pipeline. Our Android app store, YingYongBao, increased its market share from 14% to 26% in one single year, benefiting from its role as a central destination for app downloads for our own and our partner’s services. And our mobile security manager has been increasing its market share consistently and has emerged as the preferred software for providing security to handset manufacturers as well as third party app stores in China. In addition to this, creating a more vibrant ecosystem also yields more opportunities for our advertising business. We provide an unparalleled range of online advertising venues in China with particular strength in mobile, video and social. We believe we have the largest online brand advertising platform in China and during 2014, we extended our leadership from PC portal to mobile news app. Our video ad business has enjoyed rapid growth, gaining market share and also gaining major FMCG's significant advertisers. Our Android app store represents an opportunity for future growth with application advertisers. We also introduced cost per action ad in YingYongBao last November. In the area of social, we have rapidly grown news feed ads in Mobile Qzone and Weixin Official Accounts during 2014 and we started to test launch the first feed ads in Weixin Moments in early 2015. Not only that, a vibrant ecosystem also supports our online payment activities. During 2014, our users bound over 100 million Weixin and Mobile QQ accounts to bank accounts, facilitating easy and secure mobile payment. Weixin Payment and QQ Wallet are relatively new consumer-facing mobile payment solutions, utilizing Tenpay long-established payment infrastructure. While our own products such as mobile games and subscriptions tried new bank account bindings at a very rapid rate, we're progressively adding new use cases to stimulate ongoing engagement, such as charging phone cards, paying utility bills, conducting eCommerce transactions, making hospital appointments, and many others. In February, we repeated our New Year Red Envelope promotion. During this period, over 150 million users participated in sending and receiving red envelopes, up more than 15 times, one, five times compared to last year. Activities such as the red envelope promotion demonstrate the ubiquity and scalability of our payment solution, attract new payment users and also provide fun experiences to existing users. Payment will help us to facilitate more transactions, increase advertising conversion and build a gateway for future online finance initiatives. Now with that, I'll pass to James to talk about the business review.

Thank you, Martin. In the fourth quarter of 2014, our total revenue grew 24%, year-on-year. Excluding eCommerce transactions, our revenue grew 50%, year-on-year. VAS represents 82% of revenue, within which online games contributed 57% and social networks 25%. Online advertising represented 12% of revenue. For the full year 2014, our total revenue grew 31%, year-on-year, and, excluding eCommerce transactions, our revenue grew 46%, year-on-year. Looking at value added services. Segment revenue was RMB17.1 billion, up 44% year-on-year, and up 7% quarter-on-quarter. Social networks revenue was RMB5.2 billion, up 50% year-on-year, and up 10% quarter-on-quarter. The year-on-year and quarter-on-quarter growth rates were driven by sales of in-game items and subscription for mobile privileges and for premium entertainment content. Online games revenue was RMB11.9 billion, up 41%, year-on-year, and up 6%, quarter-on-quarter. Smartphone games and monetization of our popular PC games drove the year-on-year growth. Sequentially, mobile game revenue benefited from new games, expansion packs and adoption of gross revenue recognition, while PC game revenue was impacted by adverse seasonality. For the full year 2014, our VAS revenue was up 41%, year-on-year. Digging into social networks, for Mobile QQ, we upgraded technology for voice and video chat, improving poor quality and stability, which resulted in voice and video calls increasing over 300%, year-on-year. We improved file sharing between PCs and mobile devices and file transfers on our platform more than doubled, year-on-year. We built out our O2O ecosystem, integrating 58.com's local city service listings with Mobile QQ which contributed materially to 58.com's mobile traffic during the period. And we introduced money management options and improved security features that drove higher adoption of QQ Wallet. For Weixin, partly to generate advertising revenue, the owners of official accounts produced better and more content for users which contributed to rapid growth in official account page views. A new, simple-to-use HTML5 web development kit facilitates more businesses creating more powerful official accounts. We enabled offline merchants to carry out marketing and interact with users inside their shops through Weixin's Wi-Fi alliances. And we've broadened the scope of in-app search to include friends' posts from Moments and nearby restaurants from Dianping's network. Moving to PC client games, for advanced casual games our average concurrent users grew 22%, year-on-year, to 7.3 million. League of Legends in China benefited from user growth and enhanced sales of in-game skins. In the sports genre, FIFA Online3 was the most successful new PC game in any category launched in 2014 in China. In shooting games we're diversifying our portfolio to meet changing use of preferences. In addition to CrossFire, we operate Assault Fire which is the most successful domestically developed shooting game. And we recently commenced larger scale beta testing of Call of Duty online. Our advanced casual game pipeline includes the military-themed shooter War Thunder, the science fiction-themed shooter Metro Conflict, battle arena game Smite, and tower defense game, Orcs Must Die. The massively multi-player online games average concurrent users were 1.6 million, down 36% year-on-year, against a high-base period due to the launch of Blade & Soul in the fourth quarter 2013. Despite the decline in average concurrent users, massively multi player online game revenue moderately increased year-on-year due to monetization initiatives and new products. We believe there's an industry-wide tendency for some MMOG users to shift their playing time away from role playing games and towards advanced casual games because of more innovation within the advanced casual game genres. Our response is to launch what we hope are more innovative MMOGs which we believe can reignite user enthusiasm. Our pipeline includes ArcheAge, a 3D medieval fantasy MMO; Moonlight Blade, an in-house martial arts MMO; and Monster Hunter Online, a co-op player versus monster game based on Capcom's best-selling Japanese game series. For smartphone games integrated with Mobile QQ and Weixin games centers, revenue recognized gross of revenue-sharing with third party developers and related channel costs was RMB3.8 billion, up 416%, year-on-year, and up 26%, quarter-on-quarter. Historically, we reported revenue for smartphone games net of channel costs and net of developer revenue share. In the fourth quarter, we changed to recognize such revenue on a gross basis as a result of us becoming the principal rather than the agent for a number of our exclusive smartphone game licensing contracts due to changes in the cooperation models under which we operate those games. Under the gross basis, our reported revenue is now gross of channel costs such as the iOS app store revenue share and gross of developer revenue share for third-party smartphone games. This change increases our smartphone game revenue and costs but does not impact profit. We believe the change brings us into line with general industry practice. On the prior net reporting basis that we used to use, our smartphone games revenue was RMB2.9 billion, up 12%, quarter-on-quarter. Operationally, during the quarter we extended our presence from casual to mid-core titles, launching 12 mid-core games. Several of these mid-core titles topped China's iOS app store revenue ranking. Blade of the Three Kingdoms, an action game, was number one in the revenue ranking in November. Legend of Sword and Fairy, a role-playing game was number one in December; and I'm MT2, a strategy card game, was number one in January. We have expanded our success in the shooting genre from PC to mobile with a self-developed mobile shooting game WeFire which ranked number one in February on the iOS app store revenue ranking. Turning now to online advertising, segment revenue was RMB2.6 billion, up 75%, year-on-year, and up 8%, quarter-on-quarter. Brand advertising revenue was RMB1.5 billion, up 62%, year-on-year, and down 2%, quarter-on-quarter. Rapid growth in mobile and video traffic drove the year-on-year revenue increase. Our brand advertising revenue dipped slightly, quarter on quarter, due to weak seasonality and to the non-recurrence of the Voice in China 3 TV program and the FIFA World Cup soccer event. Our top five advertiser industries are transportation, food and beverage, online services, real estate and personal care. Our performance advertising revenue was RMB1.1 billion, up 98%, year-on-year, and up 24%, quarter-on-quarter. The year-on-year growth benefited from increased impression volumes on our mobile social platforms and higher cost per click. The quarter-on-quarter growth flowed from more advertisers and from more advertising activity, notably on the Weixin Official Accounts. On a full year basis, our advertising revenue increased 65%, year-on-year. For brand advertising, our overall video views and video ad revenue more than doubled year-on-year. We secured exclusive broadcast rights for NBA matches, HBO TV series and Voice of China 4, amongst other high profile content. Our own in-house productions became more popular. For example, we have commissioned a second season of widely watched, self-produced TV drama Death Notify. For our news platform, page views of our mobile news app and news plug-in for QQ and Weixin doubled, year-on-year, which led to a more than doubling of our mobile news ad revenue. For performance display, more effective targeting in new mobile ad formats attracted more advertisers. In recent months, we have been testing cost-per-action based ads in our app stores rankings and, as Martin mentioned, we're now testing feed ads from selected advertisers in Weixin, which have generated enthusiastic into advertiser and consumer responses. Consistent with the strategic transition of our eCommerce business, our eCommerce transactions revenue was down 87% year-on-year, and down 3% quarter-on-quarter to RMB446 million. We believe we'll now benefit from the growth of eCommerce in China more efficiently than in the past. First of all, we possess equity stakes in category leaders such as JD.com, Koudai Gouwu and Meilishuo, which we believe may appreciate in value over time as eCommerce activities grows. Second, eCommerce companies are the biggest industry category contributing to our performance advertising revenue. And now I'll pass on to John to walk you through the financials.

Thanks, James. For the fourth quarter of 2014, our total revenue was RMB21 billion, up 24% year-on-year, or 6% quarter-on-quarter. Gross profit was RMB12.6 billion, up 44% year-on-year, and flat sequentially. Operating profit was RMB7.4 billion, up 56%, year-on-year, or down 2%, quarter-on-quarter. Income tax expenses were RMB892 million, up 10% year-on-year, and down 36% quarter-on-quarter. The year-on-year increase was partly due to higher pre-tax profits, higher withholding tax, partly offset by tax reversals recorded for certain subsidiaries in China that qualify for lower corporate income tax rates. Lower income tax expense, quarter-on-quarter, mainly reflected the tax reversal. The effective tax rate for the quarter was 13%. Net profit attributable to shareholders was RMB5.9 billion, up 50% year-on-year, or 4% quarter-on-quarter. GAAP-diluted EPS was RMB0.625 for the quarter. For the full year of 2014, total revenue was RMB78.9 billion, up 31% from 2013. Gross profit was RMB48.1 billion, up 47% from 2013. Operating profit was RMB30.5 billion, up 59% from 2013. Net profit attributable to shareholders was RMB23.8 billion, up 54% from 2013. GAAP-diluted EPS was RMB2.545 for the year. On a non-GAAP basis, operating profit for the fourth quarter was RMB8.1 billion, up 59% year-on-year, or down 2% quarter-on-quarter. Net profit attributable to shareholders was RMB6.7 billion, up 51% year-on-year, or 5% quarter-on-quarter. Operating margin was 38%, up 9 percentage points year-on-year, or down 3 percentage points quarter-on-quarter. Net margin was 33%, up 6 percentage points year-on-year, and flat quarter-on-quarter. Diluted EPS was RMB0.717 for the quarter. For the full year 2014, non-GAAP operating profit was RMB30.5 billion, up 49% from 2013. Non-GAAP operating margin was 39%, up 5 percentage points from last year. Non-GAAP net profit attributable to shareholders was RMB24.2 billion, up 43% from 2013. Non-GAAP net margin was 31%, up 3 percentage points from last year. Let's turn to segment gross margin. Gross margin for value added services was 64% on a gross to gross basis it was down 3 percentage points year-on-year, and was broadly stable quarter on quarter. The lower gross margin, year-on-year, was primarily due to increased revenue sharing costs from a larger mix of third-party smartphone games. Gross margin for online advertising was 40%, up 8 percentage points year-on-year, and down 12 percentage points quarter on quarter. The higher gross margin year-on-year primarily resulted from lower margin in the fourth quarter of 2013 due to one-off impact of accelerated amortization of video content costs, as well as new revenue contribution from JD.com in the fourth quarter of 2014. Gross margin was lower quarter-on-quarter mainly due to increases in revenue-sharing costs and video content costs. Gross margin for eCommerce transactions was 41%, up 36 percentage points, year-on-year, and 16 percentage points, quarter-on-quarter. The improved gross margin flowed from issue [ph] gradually moving to marketplace model. For the full year 2014, gross margin for value added services was 67%, on a gross basis, 66% same as prior year. Gross margin for online advertising decreased 1 percentage point to 44%. Gross margin for eCommerce was stable at 6%. Moving on to operating expenses. Selling and marketing expense was RMB2.1 billion, up 1% year-on-year, and 8% quarter-on-quarter. The year-on-year increase mainly reflected higher advertising spending on our products and platforms such as Weixin Payments and online games, largely offset by lower promotional expenses for WeChat and lower advertising and fulfillment expenses relating to our eCommerce transaction business. The sequential up tick resulted from seasonally bigger advertising spending on our products and platforms such as mobile payment solutions and online games. G&A expense was RMB3.9 billion, up 44% year-on-year, or 5% quarter-on-quarter. This was primarily driven by increases in R&D expense included under G&A. R&D expense was RMB2.1 billion, up 66% year-on-year, or 7% quarter-on-quarter. As a percentage of quarterly revenue, selling and marketing expense was 10% and G&A 19%. R&D represented 10% of quarterly revenue. Share based compensation was about 3% of quarterly revenue. On a full year basis, selling and marketing expense was RMB7.8 billion, up 37% from 2013 and represented 10% of annual revenue. G&A expense was RMB14.2 billion, up 42% over 2013 and represented 18% of annual revenue. R&D expense was RMB7.6 billion, up 49% from 2013 and represented 10% of annual revenue. As at quarter end, we had approximately 27,700 employees, up 1% year-on-year, and 5% quarter-on-quarter. The sequential increase was primarily because we included headcount of newly acquired online literature business and new hires to support business growth. Looking at margin ratios for the fourth quarter. Gross margin, ex eCommerce was 60.7%. On a gross-to-gross basis, it dipped 1.7 percentage points year-on-year, and 2.3 percentage points quarter-on-quarter. The year-over-year decrease in gross margin was mainly due to increased revenue sharing costs from a larger mix of third party smartphone games. Sequentially, gross margin declined primarily due to increasing revenue sharing costs on smartphone games and Weixin official accounts advertising and video content costs. Non-GAAP operating margin, ex eCommerce, was 38.4%. On a gross-to-gross basis, it was up 2.7 percentage points year-on-year, and down 2.6 percentage points quarter-on-quarter. Higher margins year-on-year was mainly due to a decline in selling and marketing expense as a proportion of total revenue, partly offset by lower gross margin. The sequential decline was primarily because of lower gross margin. Non-GAAP net margin, ex eCommerce, was 32.4%. On a gross-to-gross basis, it is up 1.1 percentage points year-on-year, and 0.4 percentage point quarter-on-quarter. The higher net margin year-on-year was mainly due to higher operating margin. The quarter-on-quarter increase in net margin was mainly due to a lower effective tax rate as a result of tax reversals that more than offset the different operating margin. For 2014, basic EPS was up 52% year-on-year to RMB2.579 and diluted EPS was up 53% year-on-year to RMB2.545. Non-GAAP basic EPS was RMB2.624 and diluted EPS was RMB2.589, both increased by 42% from last year. Subject to the approval of shareholders at their Annual General Meeting to be held in May, we are proposing an annual dividend of RMB0.36 [ph] per share. This is 50% above last year's dividend and the payout ratio is stable at 11%. For the fourth quarter, total CapEx was RMB1.6 billion, down 5% year-on-year, or up 51% quarter-on-quarter. Operating CapEx was RMB592 million, down 35% year-on-year and 1% quarter-on-quarter. Non-operating CapEx was RMB1 billion, up 33%,year-on-year, and 120% quarter-on-quarter. Free cash flow reached RMB9.2 billion, up 76% year-on-year, and 32% quarter-on-quarter. Our net cash position at year end was RMB22.8 million, down 37% year-on-year, or up 7% quarter-on-quarter. Year-on-year decline in net cash was mainly due to strategic investments, partly offset by increase in free cash flow generated during the year. The fair market value of our listed associates and available-for-sale financial assets were RMB60 billion as at quarter end. This concludes our presentation. Thank you.

Thank you. Operator, we shall open the floor for the questions.

Thank you. [Operator Instructions] Your first question comes from Erica Poon from UBS. Please ask your question.

Hi. Thank you, management, for the presentation. I've got two questions. The first question is on the Moments advertising. I understand that you've started the beta testing in January. If you can just give us a little bit of feedback, how that's been going and when do you expect to launch it officially, and do you have any target in terms of the overall revenue expectation? Secondly is if you can go through some of the costs, how much you've spent in 2014 for video content, some of the subsidies for your O2O initiative and also your international expansion of the WeChat and what is the trend for 2015? Thank you.

Okay, I'll take a stab at the first question. In terms of Moments advertising we actually just started test launching the service and, so far, we have only had around 10 advertisers. And the objective of the testing is really for us to figure out the consumer response and also the interaction with the advertisers, so that we can keep honing on the system. We believe Moments is an important venue for advertising because it has a very significant traffic, but at the same time, because it's such an important part of people's engagement with us, we want to do it in a very careful way. We want to make sure that the advertising itself is of high quality. We want to make sure that the analytics are used correctly so that we match the right advertising to the right users. And the format of the advertising is actually presented in the right way. And also we want to make sure that the social, viral mechanism is actually designed in the right way so that you can, on one hand, maximize the exposure, but also so that at the same time do not allow for spamming of the users. So I would say the initial response of the Moments advertising is actually positive from the user’s perspective. The advertisers are extremely positive because they get a very focused audience. At this point in time, we believe that it's a good start. We will continue to refine the various components of our overall system and gradually increase the number of advertisers to be introduced to this program. So I think that's our plan. We believe that it carries a very significant opportunity over the long run but, because of that, we want to do it in the right way and we'll do it in a step-by-step manner. In relation to Weixin advertising, we actually do have another venue for advertising which is advertising within the Official Account. I think on that front, the scale is actually bigger because what we want to do is we want to have more advertising dollars spent on the Official Account, so that we have more revenue to be shared with the Official Accounts and that would act as an inducement for Official Accounts to be more active and to put in better content. And that initiative has been actually underway quite nicely and we have seen a win, win, win situation among the content providers, the advertisers and ourselves. And I'll pass to James to talk about the costs.

Yes, I think you're asking about the costs related to WeChat international marketing O2O initiatives and video content. In general, we don't give very specific numbers, so I apologize for that in advance. But to give you some context, with the WeChat international marketing we spent very aggressively in 2013 on TV marketing primarily. In 2014, we reduced that spending very substantially and then, as we look into 2015, you should expect that spending is growing relatively well controlled. The focus now is less about TV marketing for the core WeChat app that we think has limited effectiveness in most markets and more about developing adjacent applications and services that will enable WeChat outside China to enjoy some of the similar ecosystem benefits and therefore differentiation versus competitors that Weixin has enjoyed inside China. With regard to O2O initiatives, that was a large and grossly volatile spending during 2014. As you look into 2015, O2O is a priority. We'll continue to invest against it but the spending may be somewhat opportunistic and somewhat lumpy, as it was in 2014. Then, finally, on video content, we dramatically increased our video content spending from 2013 to 2014. We're extremely happy with the results, both in terms of traction on the traffic side and, as Martin mentioned, we recently became the number one in China in terms of mobile video views. And also in terms of the revenue and you can see that our video advertising revenue has more than doubled, year-on-year, every quarter now for over a year, despite the base getting bigger and bigger. So, as a result of our happiness with past success, we're continuing to smoothly increase our video content spending into 2015. That buys us key content such as NBA basketball matches exclusively, HBO series exclusivity, Voice of China 4 exclusivity, self-produced programs and so on and so forth. So you should expect us to continue investing – re-investing aggressively in video content as our video advertising revenue grows.

Next question, please.

Your next question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi. Good evening, management. Thank you for taking my questions. I have two questions. The first one is I'm just wondering how would you promote your mobile advertising business, especially on those local base – location based advertising in future? Will you recruit extra offline sales force for this business? And I'm wondering how would advertising business affect your margin in the future. And as there is – as we know that there's some profit sharing scheme regarding your advertising revenue from Official Accounts, just wondering if this revenue is recorded on gross basis or net of revenue-sharing to the Official Accounts owners? Thank you.

Okay. In terms of the promotion of the mobile advertising, it's true that the number of advertisers is actually a very important component of the overall advertising business for performance based advertising. Now having said that, what we want to do is actually, if you look at our description of our connect strategy, is that we do want to build an ecosystem of services around our high-frequency app such as Mobile QQ and Weixin, and it's actually with a lot of the partners who can actually bring in advertisers. So if you look at, for example, eCommerce advertisers we have JD and some other partnerships who can actually through their open market platform bring in a large number of advertisers. We have a partnership with Dianping, we have a partnership with WUBA, who have access to millions of O2O merchants and these are all potential advertisers on our platform. So I think for us it's actually very important to build an ecosystem so that we can leverage on the very specialized sales force that each one of these partners actually bring in so that we don't have to build as many of the sales forces ourselves. And at the same time, when we actually can build a very large user base off our payment solution then we can have our partners, the partners bring in services, the partners bring in advertisers and we can actually help them to complete transactions within our ecosystem and that would help us to build a very conducive advertising ecosystem in a relatively high leverage less just the human intensive type fashion. And I'll pass to John to talk about the revenue share.

In terms of the revenue recognition of Weixin Official Accounts advertisement, basically we book it on a gross basis.

Okay, thank you. Next question please.

Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.

Hi, good evening, thank you for taking my questions. I have two questions. The first one is more about your strategy. As you mentioned that you have been working more closely with some of your partners. So I'm just wondering in the long term how could that affect your opportunities in working with other companies, perhaps also in a similar industry as your partners? So that's my first question. And then secondly, just a housekeeping question, I wonder if you could share with us the ARPU trend of your different types of games. Thank you. And then I will get back to the queue.

Yes, I think on the strategic front, we do have partners and I think by and large our platform is an open platform which actually can support different types of partnerships. In some cases we have basically just a commercial relationship, in some cases we don't even have a relationship but we provide the API and some of these partners basically just put their content, put their services on our platform. But in some cases we actually make investments in some of the, I would say, more significant partners. I think in those areas usually we make investment in the best-of-breed vertical so these are the market leader within their respective market segment. And at the same time we don't necessarily focus on, oh, we're going to help them to gain competitiveness by disabling other people. What we usually do is actually we sit down together and brainstorm on what are the things that we can do together to leverage our platform better so they can actually find new users or they can actually manage relationships with their existing users on a more frequent basis. And they can leverage our infrastructure to spread their already very good word-of-mouth effect more prominently. So I think it's actually more enabling rather than disabling others.

In relation to the ARPUs, for MMOG quarterly ARPU is within RMB295 to RMB395. For ACG, RMB95 to RMB235. In relation to smartphone games on Weixin and QQ on a gross basis is within RMB155 to RMB165. In order to give you a better idea as to the comparative figures, for quarter three if we had traded on a gross basis it would have been RMB120 to RMB130 per quarter.

Thank you. And your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

Hi, good morning, everyone. Thank you for taking my question. The first question is about your digital content strategy. Can you share with us the rationale of prioritizing a broad digital content investment in 2015? And then secondly is regarding the red envelope campaign you guys did in Q1, what could be the financial impact? Are you guys going to be incurring some part of the sales and marketing expense in 1Q in regard to this campaign? Thank you.

Maybe I'll start on the digital content strategy and why we're executing it in 2015 and then Martin can take over for the red envelope. With digital content we've been relatively active in certain formats of digital content such as games and music for many years already, but it's fair to say that in the last few months that there's been a step-change in the intensity of our focus and investment in digital content. Some of the contributing factors would be fairly obvious, that we believe that consumers are increasingly desirous of consuming content be it music on their smartphone rather than music on a Walkman, be it a video on their tablet rather video on a traditional TV device and so forth. A second reason is that we think the content suppliers are increasingly focused on tapping into an online audience and customizing their content for an online audience. Then a third, more immediate reason is that we see some signs that the attitudes toward piracy are changing quite quickly and that's both at a regulatory level, at a legal level and also a consumer level. So given all of the above, we believe we have a platform that's already proven with games, with news, with music, that it can be a very powerful force for distributing the best content to the most users in the most interesting ways.

In terms of the red envelope, we are going to incur certain expenses in relation to the promotion because we did put advertising, we did put some of our own marketing dollars and digital items and things like that into the red envelopes. But I would say that's only the first layer of value for the users. The next layer is actually we invite a lot of merchants to participate in this red envelope program so that there are different merchants who have put in either cash or cash coupons and discount coupons so that forms the next layer, the second level of value for the users. And then what happens is a lot of users actually put in a red envelope for the other users, so it's users' money going around the system. And if you look at the ratio of first versus second versus third level it's actually 1 to 10 to 100, in that rough range. So there's a vast magnifying impact of our investments, pulling in a lot of merchants and then that will also get a lot of users to participate in a C2C way. So why that's the impact of the red envelope that comes from somewhat investment from us is actually much more magnified.

Thank you. Your next comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi, thanks for taking my questions. My first question is on your WeChat Moments advertising, I understand that Martin mentioned some of this initial feedback. I wonder any more color in terms of maybe the launch plan this year as well as maybe some of the formats such as like apps download type of format. Then I have a follow-up. Thanks.

I think right now we do not have a definitive launch program that we want to announce. Right now what we're doing is, we're doing a lot of data collection based on the initial launch of this app test and we're formulating the next steps as we collect and analyze these data. So we don't want to go out and make a commitment on this launch as yet. We believe that, as I said, this is a very large long term opportunity and I think it's probably worth the waiting to make it sort of more perfect.

Got it. Then two housekeeping questions quickly. First is all is that the deferred revenue was up by 10% quarter-over-quarter for the current portion, I wonder how should I read that increase? And maybe secondly is that, I wonder if you can share with us the gross revenue for mobile games in the second quarter and third quarter? I got the third quarter gross mobile game revenue around RMB3.3 billion, I'm not sure if that's correct? Thanks.

Okay, in relation to the deferred revenue, actually if you add the current plus the non-current it increased by about 5%. If you exclude the deferred revenue attributable to the JD-related prepaid BCA [ph] traffic, actually it increased by about 8%. I think for a normal season like that we assume that the increase of about 8% is considered to be higher than other times due to the fact that some of the games, we did quite a bit of promotion. However, those games are in relation to games that we need to amortize the items for a period of nine to 12 months, rather than six months or four months, so basically it stacked up quite a bit this quarter. I think the gross revenue for 2Q…

Why don't we come back? John will check, okay. Next question and we'll come back to you.

Thank you.

Thank you. And your next question comes from Chi Tsang from HSBC. Please ask your question.

Good evening. Thanks so much of taking my questions. I want to ask you a question on smartphone gaming, it was up about 11% or 12% q-on-q on a normalized basis. I'm wondering how we should be thinking about smartphone gaming this year in terms of revenue pace? And secondly I wanted to ask you about Weixin Payment. 100m user accounts is a very large number, I was wondering if you can give us a sense of maybe some of the characteristics in terms of average spend, frequency, any sort of color would be helpful? Thank you.

So I'll answer on smartphone game revenue as best I can and then hand over to Martin for the payment bindings, which we said it’s over 100 million. So on the smartphone gain revenue, I think mathematically it's extremely likely that the pace of growth for the industry and for us within the industry should be slower in 2015 than it was in 2014, just because in 2014 we were moving from a very tiny base to a bigger number, whereas 2015 we're starting off a bigger number. I think that, that said, we felt to achieve low-double-digit sequential revenue growth from smartphone games in Q4 was a reasonable achievement and we also felt that, more importantly, we were executing on our strategy objective which is to enrich the mix of mid-core games and enrich the mix of third party games within the smartphone games that we published by us. So as I mentioned in the prepared remarks, we have the number one revenue game in the Apple App Store in each of, I think, November, December, January and February and each month it was a different number one game but each month it was a mid-core game published by us. So looking forward, the number of people playing smartphone games in China is already huge, it's more than doubled the number of people playing PC games, that number of users will probably incrementally increase as more consumers get smartphones, but we think that the bigger variable is whether the number of smartphone game genres, which historically has been very limited, expands because right now there's a disparity between people playing relatively few types of games on smartphone versus a relatively wider range of games on PC. If more of those PC game genres successfully make the transition to smartphone then it's likely that they will also be successful in driving up the conversion from free to paying users and to a lesser extent enhancing the ARPU of the paying users. So to put this in concrete terms, we were quite excited about the success of Tian Tian Xiao Chu or WeFire because historically shooter games have not made the transition to smartphone, but that game does seem to be a relatively successful shooter tame on smartphone so far. So overall we think the smartphone game industry is entering a period of more healthy growth after the unusually rapid growth than the early downturn that we experienced in the first three quarters of 2014.

In relation to the smartphone games revenue on a gross basis for quarter three, it would be around 3 billion. So for quarter four it's around 3.8 billion, so you can see the increase is 20 something percent. The quarter three share of cost, plus the sharing will be grossed up by about 430 million, whereas for quarter four it has been grossed by about 900 billion. Thank you.

Okay. Well, in terms of Weixin Payment, we talked about there are over 100 million accounts that have already been bank account enabled and the number has gone up quite a bit after the red envelope promotion during Chinese New Year. Now I would say that the characteristics of these binding accounts is that typically the users use this more frequently, more frequently compared to the PC counterpart, because it's almost like a wallet that sticks to them on a constant basis, so there's more payment potential. And in relation to that we actually have been trying to add more payment use cases along the way. The first wave of that was really new digital items, so it's our games, it's our QQ points but over time we also add in a lot of quasi digital payment instances such as cell phone top-ups, such as donations to a whole range of charity organizations, these are all activities which are very easy to do over your cell phone. The second category are really C2C or social activities such as people sharing a meal's bill and people transferring money as well as red envelope, these all fall into this category. The third category is eCommerce activities, so by partnering with JD and other companies we actually allowed eCommerce activities to happen within our network and, as a result, that also adds to the activity of users. And finally it's a whole range of O2O services, so you can see people buying group buy coupons, people paying for all sorts of O2O types of services. And we also see some people starting to use it offline so, for example, if you go to a convenience store you could use Weixin Payment or QQ Wallet in some instances. So we felt that there will be more and more use cases that we'll add and with a larger and larger number of users it will also attract more and more merchants to adopt our mobile payment solution. And we do envision a scenario in the future that a large number of users will be bound to our bank cards and as a result that would actually open up a big opportunity for us around the entire ecosystem as part of our connection strategy.

Thank you. And your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question.

Thank you very much. Two quick questions. We're obviously aware the growing success of mobile commerce on Weixin and Mobile QQ are largely through the cooperation with partners such as JD. However it seems that conventionally defined C2C mobile commerce also seems to be growing very fast, and there's even an entire sub segment of venture investing focused on enabling C2C on platforms such as Weixin. I'm just wondering, are you in a position yet to estimate how much C2C GMV might be occurring on Weixin and QQ Mobile and maybe at what pace it is growing? And then my second question is, I'm just wondering, should we expect many innovations and new products to flow from your recently secured banking license this year? I was hoping you might be able to more specifically characterize these plans. Thank you.

Well, in terms of C2C commerce it's true that there are more and more such activities happening on our Mobile QQ and Weixin. We can't quantify it as this point in time because there's not a central repository for these transactions but our feeling is that it's actually already quite substantial. But it's a little bit like moving offline transactions online, so in the past if somebody had a flower shop and they received orders by taking a call, now some of them actually can sell over our applications. So these are hard to quantify but clearly when we did the transaction with JD we said a centralized and open platform eCommerce activities we're going to do it with JD. But then in terms of just facilitating this overall C2C type of decentralized eCommerce activity we'll continue to explore, and over a year we're seeing more and more of such activities happening. So in the future what we see is there will be more eCommerce activities happening over our platform, hopefully that would actually help us to nurture a bigger advertising business and it would also give rise to more use cases for our payment solution. Now in terms of the WeBank license, we got the license last year. We are targeting to open door in April, I think we're still on track to do that. I think initially, even after it opens door there will be a lot of testing of some innovative products. I think the positioning of this WeBank is that on the consumer-facing end it will be targeting consumers as well as small enterprises who are sort of underserved by traditional banking because it's tougher to find out who they are, where they are, when they need credit. At the same time, when you get them if they want uncollateralized credit it's tougher to price their risk. We hope that WeBank can actually leverage a whole host of technology as well as our consumer reach to reach these people and also how to price the risk at an attractive level. And then, on the backend, WeBank is going to work with existing banks, it's not going to go out and raise a lot of deposits because that would one, be very heavy in terms of the business model; and two is it would require a lot of capital, the more deposit you take the more capital you take, that's the more traditional bank model. Instead what we characterize, WeBank is really a bank cooperation platform with a banking license. So because of the banking license we can actually be part of the network and offer different types of services but on the other hand it would actually strive to work with existing banks so that once they generated these credit needs they can actually work with the banks to provide for these credit needs.

Okay. Next question.

Thank you. Your next question comes from the line of Cynthia Meng from Jefferies. Please ask your question.

Thank you, management. I have two questions. One is a housekeeping question first. Management mentioned that casual and mid-core and hardcore game players accounted for 21%, 45% and 34% of Tencent's gamer base in the first quarter last year. How does this compare to the current mix? And the second one is more generally speaking for the full year, what would be the investment focus for this year? We have seen Tencent has made a lot of investments in the past two years, is there some more color on 2015, that would be great. Thank you.

So by investments you actually mean equity investments?

Yes.

Okay all right, because I think in terms of the cost investments, marketing, I think James has already talked about content and promotions for payment and O2O. Now in terms of equity investments I would say we had a very big year last year, we actually invested in a large number of vertical players and that's really part of our overall connection strategy. If we want to do connection we want to be able to work very closely with certain companies who we believe have got really the vertical domain knowledge and expertise and in a lot of cases they have quite a bit of offline assets, be it sales force or distribution network, in order for us to leverage. So we have done a lot of that. I think in terms of looking at 2015 we'll continue to look for these partners, companies who have domain expertise and then within industries that we felt clearly has potential for creating something along the line of what Pony said, internet plus, so internet plus a certain industry we can actually create a unique experience or more efficiency. So when we find these partners who have these unique assets and expertise where we can bring value to a particular vertical industry then we would make the investment. I would say a lot of them have been already found in 2014 but in 2015 we'll continue to look for these opportunities. I think we may invest in content providers in order for us to have closer relationships, in the past we have invested in game companies, in certain entertainment provision companies and we'll continue to do that. I think overseas if we see companies which clearly have got the management team as well as a positioning within certain markets to do interesting things, especially the things that we already have seen will work in China, then we are very happy to make the investment too. So these are the areas of investment that we'll look at.

Thank you.

Operator, in the interests of time we shall take the last three questions please.

Certainly. Next comes from the line of Wendy Huang from Macquarie. Please ask your question.

Thanks, management and IR team. I have some short questions. First of all, you just released the Weixin O2O solutions for the 11 industries. I wonder, does this mean Tencent may enter into another round of strategic investments in the offline partners? Associated with that, I think some of the internet companies recently also started their investment in the hardware including Alibaba's investment in Meizu. So will Tencent also consider similar kind of strategic investment? And my second question is about your international expansion plan. I think, again, recently we saw that Alibaba invested in the Snapchat, so how will this change the global competitive landscape for WeChat? And also can you share some updates on WeChat global expansion and footprint. Lastly, I think…

Wendy, I'm sorry we will give two questions for each analyst, we'll take those two questions and then put you on the queue for a second round if there's time.

Okay, thank you.

Yes, so Weixin O2O, I think in line with what we talked about as part of our connection strategy, we do want to connect users with many different industries through our platform. Now whether we have to make investment in each one of these verticals, I don't think so. We will try to look for the ones that are most value creating and the ones that have a unique vertical partner that's best-of-breed and maybe the partner itself has got a very strong willingness to work with us. So I think there are a lot of factors that go into an investment decision, but even without an investment we have a lot of business partnerships which actually bring our platform to enable other companies to perform well. And at the same time we also have this open APIs where everybody can use. So I think that adds different layers of cooperation that we can actually have with multiple partners. Now in terms of investment into hardware, I think we don't strive to become a hardware manufacturer. If you think about Tencent's strategy, we want to be hardware agnostic. The strategy that we have is that we're actually creating the best applications that actually can go with any hardware and as a result we don't really look to profit from a piece of hardware or a brand of hardware. We want to work with all the hardware manufacturers. Now, so the different hardware manufacturers may have different need, some hardware manufacturers say, oh, I want to have a business relationship with you. Some of the hardware manufacturers will say, oh, would you mind actually putting in some money to help me fund a certain project? We're not completely against those ideas, it actually helps us to build a relationship with the hardware partner but we don't want to get into exclusive relationships with hardware because what we see us being strong at is really providing a ubiquitous application that sits on top of all kinds of hardware that allows all users to use. Now in terms of the international expansion plan, we have been investing in international companies for quite some time and coincidentally we are an investor in Snapchat in much earlier lines. And I felt – we will continue to look for unique opportunities, we look for opportunities in which there is a management strong management team, very clear business model and a good product and we'll continue to make those investments. To date we have invested billions of dollars outside of China and a lot of them have yielded a pretty good result and we'll continue to do that.

Thank you. Next question please.

Thank you. Second last question comes from the linen of Alicia Yap from Barclays. Please ask your question.

Hi, good evening, management. Thanks for taking my questions. I have one question regarding the WeChat games. So can management share with us some analysis of the gamer profile. So, for example, how many of the 500m MAUs are gamers? And are those playing your new mid-core games this quarter, were those also playing your causal games in the beginning? So given they are playing all these games, are they no longer playing the earlier games. So I just wanted to get a sense how many of, for example, on average, how many numbers of games per each active gamer are playing for a given time? And have you seen any migration from your PC gamers to the smartphone games? And quickly on the web games, just because a number of the peers are seeing some slowdown on the PC web games, so I wonder whether Tencent has seen any of this? Can you give any color? Thank you.

I think on the web game side, you're right that the industry has experienced some pressure. Our own web game business has actually been doing fine, partly because of some big new hits such as the Naruto game based on the Japanese Ninja IP that some of that of you may know. But frankly web games is a relatively smaller proportion of our game revenue than it is for some of our listed peers. With regards to the user profile of mobile games, just to speak at a very general high level, as a gross generalization, those people who were playing PC games a year ago have started playing mobile games as well as PC games, they typically do so at different times of day and for different game session lengths. And then there's a wider number of people who weren't paying PC games who are going direct to mobile games as well. When we look at the evolution of the gamer behavior in recent months then, again as a gross generalization, those gamers who were playing harder core games on PC and casual games on mobile, might now be sampling some of the mid-core games on mobile as well, so that's sort of enriching the activities on mobile. Obviously over time we would like some of those people who have gone direct to mobile to play mid-core games but in the near term the bigger opportunity is replicating on mobile the behaviors that are already exhibited on PC.

Thank you. And your last question for tonight comes from the line of Jin Yoon from Mizuho Securities. Please ask your question.

Hi, thanks for taking the question. I'm Miranda Zhuang, I'm sitting on behalf of Jin Yoon. So I want to ask a question about performance-based ads. So from your point of view where do you see the ad money is coming from? Is it more from the shift of ad dollars from the display ads to performance-based ads or is incremental ad dollars? And in the US we have seen that there is an ad budget category called social advertising, have you seen this happening in China yet? What's your view on the development for 2015? Thanks.

Sure. In terms of performance ads, from our perspective it's actually incremental dollars. We have sort of in the 10,000 range of advertisers and a lot of them are not traditional advertisers on our branded ads. I think there are some big brand names who are experimenting with performance ads but a lot of it is actually incremental to their overall budget as well. You're right in saying social advertising is a pretty big category in the US and it's mostly dominated by Facebook. So what we see as our opportunity for China is actually to invent this category for China and we see, given what Facebook has been achieving in the US we see quite a promising long-term potential for us in this category. Right now we already have quite a bit of revenue by putting advertising, performance based advertising around Qzone feeds as well as these Weixin Official Accounts and we will continue to improve the ad targeting technology, we continue to improve the design and features of the ads, we'll continue to figure out what's the best way to sort of encourage positive viral effect of the ads, we continue to sign up more advertisers. But at the same time we want to do it in a very well paced way, so that we give them optimal balance between user experience and advertisers needs.

Okay. Thank you very much, operator, we're winding up the call now. If you wish to check our press release and other financial information please visit our corporate website at www.tencent.com/ir. We'll post a replay of this webcast on the site shortly. Thank you and see you next quarter.

Thank you. That does conclude our conference for today. Thank you for participating in Tencent Holdings Ltd 2014 fourth quarter and annual results announcement conference call. You may all disconnect now.