Catherine Chan - Investor Relations Pony Ma - Chairman and CEO Martin Lau - President James Mitchell - Chief Strategy Officer John Lo - Chief Financial Officer

Dick Wei - Credit Suisse Eddie Leung - Merrill Lynch Alicia Yap - Barclays Alex Yao - J.P. Morgan Cynthia Meng - Jefferies Erica-Poon Werkun - UBS Chi Tsang - HSBC Vivian Hao - Deutsche Bank Jin Yoon - Mizuho Securities Wendy Huang - Macquarie Ming Jao - Edisons Research Piyush Mubayi - Goldman Sachs

Thank you for standing by. And welcome to Tencent Holdings 2015 First Quarter 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 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 the first quarter 2015 results conference call. 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 underlines our 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. This 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. Now 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 review value added services segment performance, James will speak on our advertising and John will go through the financials before we take your questions. I'll now turn the call over to Pony.

Thank you, Catherine, and good evening. Thank you for joining us. In the first quarter of 2015, we achieved solid financial growth in our core titles with an expanded mobile user base, enriched entertainment, video content and enhanced app solutions. A few numbers to highlight, total revenue excluding e-commerce transactions was RMB22.2 billion, up 40% year-on-year and 8% quarter-on-quarter. Non-GAAP operating profit was RMB5.4 billion, up 45% year-on-year and 16% quarter-on-quarter. Non-GAAP net profit for shareholders was RMB7.1 billion, up 36% year-on-year and 5% quarter-on-quarter. Turning to our key platforms, total MAU for QQ was 832 million, within which smart devices MAU grew 23% year-on-year to 603 million. Weixin and WeChat reached combined MAU of 549 million, up 39% year-on-year. Total MAU for Qzone was 668 million, within which smart devices MAU rose 22% year-on-year to 568 million. Our online games platform sustained its lead to on PC and mobile with broader and more divested value against portfolio. And now our immediate platforms, mobile news is most realizing viewed news service in China. Our video platforms solidified its leadership. It’s leading position in China with traffics more than upper end year-on-year. On our utility services we saw higher adoption of our mobile security solutions and mobile browser services and app store. With that, I will pass to Martin to speak through business review.

Thank you, Pony, and good evening, everybody. In the first quarter of 2015, our total revenue grew 22% year-on-year, excluding e-commerce transactions our total revenue increased 40% year-on-year. VAS revenue represented 83 of total revenue of which online games contributed 59% and social networks 24%. Online advertising represented 12% of total revenue, up from 6% a year ago. For value added services, segment revenue was RMB18.6 billion, up 29% year-on-year and 9% quarter-on-quarter. Social networks revenue was RMB5.3 billion, up 32% year-on-year and 3% quarter-on-quarter. The growth slowed from higher sales of in-game items and monthly subscription for mobile privileges and premium entertainment content. Online games revenue was RMB13.3 billion, up 28% year-on-year and 11% quarter-on-quarter. Contributions from new games on smartphones and PC and increased monetization of popular events cash game titles largely year-on-year revenue growth. Sequentially performance benefited from profit seasonality in PC games and also broader mix of smartphone game [indiscernible]. Moving to social networks, for Mobile QQ, in the quarter we further reinforced the young and active differentiation of Mobile QQ via new personalization and entertainment options and with deepest penetration among young internet users. We promoted user engagement on a daily basis via nearby groups and on special occasions through Red Envelope gifting. Our nearby groups which was launched a year ago scaled to around 1.7 million and we also have 1 billion Red Envelope shared among QQ users over the six-day Chinese New Year period. For Weixin, we organized check for Red Envelope’s promotions, which spread virally among Weixin users. This allowed you a record 3 billion Red Envelope shared over Chinese New Year, as well as a meaningful increase in Weixin Payment adoption and payment transactions. As part of a connection strategy, we enabled offline merchants to offer use coupons to promote their products and services. We also connected users in five major cities to local health, transport, utilities and municipal services. Now moving onto games, looking at PC client games, the average concurrent user trend showed an ongoing shift of users playing time from MMOG to advanced casual games. For advanced casual games, in the battle arena category, League of Legends robust performance benefitted from enhanced sales of holiday items as well as player-to-player gifting on the Chinese New Year. We have closed beta testing new 3D battle arena titles including SMITE and Master X Master to expand this genre. In the sports category, holiday gift pack sales boosted revenue of FIFA Online 3. In April, in order to enhance local content and player engagement, we instituted the China soccer themes and also enabled global tournament play mode. In the shooting category, we deepened our leadership, offering the broadest selection of shooting games in China. For MMOG, we are working to build more compelling and innovative titles to attract users. Moonlight Blade, our in-house martial arts role-playing game is now one of the top three most highly anticipated PC games in China, will enter closed beta testing in late May. They also started to close beta test some ground-breaking hybrid China games including Monster Hunter Online, the first action role-playing MMO in China with hunting gameplay. The game is the first free-to-play online game from Capcom’s popular console game franchise and also MX, the first action role-playing MMO in China with third-person shooting gameplay. We’ll leverage this creative IP to develop not only PC games but also mobile game and with series as well as books. For smartphone games, we widened our midcore audience, adding seven new midcore titles for Mobile QQ and Weixin Game Centers. To diversify player base, we’re instituting new genres like shooting, crystal and dress-up. We extended our success in shooting genre from PC to mobile with the game we fire, which reached number one in China’s iOS app store revenue ranking during the quarter. We’re licensing titles based on popular game in I am MT2. We operate the game by I am MT2 which is sequel to 2013 most popular Card Battle game. In the pipeline, we also have Infinity Blade Saga, Carrot Fantasy 3, and Mobile versions of DNF as well as Naruto. Besides Mobile QQ and Weixin Game Center, we also extended our game platform to include app store in mobile and mobile browser. And they are emerging as important game distribution hubs in China. First quarter smartphone games revenue for Mobile QQ and Weixin Game Center, YingYongBao browser as well as other platforms altogether reached RMB4.4 billion and that’s up 82% year-on-year and 8% quarter-on-quarter on a gross basis. With the multi-platform distribution platform and with continued general diversification, we retained our position as the leader, mobile game publisher in China by both daily active users and revenues. With that, I’ll pass to James to review our online advertising segment.

Thank you, Martin. Good evening everyone. Our online advertising segment revenue was $2.7 billion RMB, up a 131% year-on-year and up 4% quarter-on-quarter, within which our brand advertising revenue was RMB1.4 billion, up 90%, year-on-year, and down 7%, quarter-on-quarter. Revenue jumped year-on-year due to strong video traffic growth, particularly on mobile. Sequentially, increased video viewership partially offset the usual weak seasonality in the first quarter. Mobile contributed approximately 40% of our brand advertising revenue. Our performance advertising revenue was RMB1.3 billion, tripling year-on-year and up 18% quarter-on-quarter. New mobile ad inventories more effective targeting driving higher QoQ rates and higher cost per click drove the year-on-year revenue growth. New mobile ad inventories particularly for Mobile Qzone, Weixin Official accounts and our YingYongBao app store with the primary drivers of the sequential performance advertising revenue growth and mobile contributed about 75% of our performance advertising revenue during the quarter. For brand advertising, our top five advertiser industries were food and beverage, sports materials, online services, personal care and consumer electronics. Benefiting from more TV drama series and movie rights, our video platform attracts a wider viewer base and increased engagements in terms of video views per user. This resulted in a more than doubling of video views and video ad revenue year-on-year. From mobile news service, daily page views increased 75% year-on-year and ad revenue more than doubled year-on-year. The performance of advertising, mobile Qzone ad revenue increased quarter-on-quarter as click-through rate and cost per click both improved. VAS subscription count ad revenue increased modestly quarter-on-quarter as traffic hour offsets seasonally lower demand for eCommerce advertisers in the first quarter versus the fourth quarter. We began generating meaningful revenue from YingYongBao listing ads and in Weixin Moments limits the number of brand advertisers, ran outs, helps us establish an advertising case studies and best practices for the future. We monitor consumer engagement with the ads across the number of metrics such as click-through rates, buying ad shares and [indiscernible] advertisers test drive to actually taking on the cards that are advertised. The results so far are encouraging and we will therefore progressively expand a number of advertisers’ range of ad formats and ad targeting mechanisms for Weixin Moments advertising in the months to become. In April, we combined the products and ad sales team of our Weixin Group and our social network group into a single operation. We believe this unification enables us to better serve advertisers across our different properties and better target ads to consumers across our different properties using the [indiscernible] targeting engine. And with that, I will pass to John.

Thank you, James. Hello everyone. For the first quarter of 2015, our total revenue was RMB22.4 billion, up 22% year-on-year, or 7% quarter-on-quarter. Gross profit was RMB13.4 billion, up 27% year-on-year, or 6% quarter-on-quarter. Operating profit was RMB9.4 billion, up 20% year-on-year, or 27% quarter-on-quarter. Finance costs were RMB433 million, up 82% year-on-year or 59% quarter-on-quarter. Interest expense incurred on new US$2 billion bonds issued in February as well as Forex loss contributed to the quarter-on-quarter increase. Income tax expenses were RMB1.7 billion, up 46% year-on-year or 91% quarter-on-quarter. The year increase mainly reflected higher pre-tax profits and higher corporate income tax applied for certain subsidiaries in China. The effective tax rate for the quarter was 19.7%. Net profit to shareholders was RMB6.9 billion, up 7% year-on-year, or 17% quarter-on-quarter. On a non-GAAP basis, operating profit for the quarter was RMB9.4 billion, up 45% year-on-year, or 16% quarter-on-quarter. Net profit attributable to shareholders was RMB7.1 billion, up 36% year-on-year or 5% quarter-on-quarter. Diluted EPS was RMB0.752 for the quarter. Turning to segment gross margin. Gross margin for value-added services was 65%. On a gross to gross basis, it was down 2 percentage points year-on-year and up 1 percentage point 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 and increased channel costs. Gross margin for online advertising was 39%, up 4 percentage points year-on-year and was down 1 percentage point quarter-on-quarter. The higher gross margin year-on-year resulted from rapid advertising revenue growth, partially offset by greater investment in video content. Moving on to operating expenses. Selling and marketing expense was RMB1.3 billion, down 29% year-on-year, or 36% quarter-on-quarter. The year-on-year decline mainly reflected reduced subsidies to user who book taxi-rides using Weixin Payment. Sequential decrease primarily resulted from a seasonal reduction in advertising and promotional activities. G&A expense was RMB3.7 billion, up 25% year-on-year, or down 8% quarter-on-quarter, of which R&D expense was RMB2 billion, up 34% year-on-year and down 6% quarter-on-quarter. The year-on-year growth in G&A expense was mainly driven by increased R&D expense and staff costs. Sequentially, G&A expenses decreased mainly due to lower consultancy fees, outsourcing costs for ad-hoc research and development project, and office-related costs. As a percentage of quarterly revenue, selling and marketing expense was 6% and G&A 16%. R&D represents 9% of quarterly revenue and share-based compensation was about 3% of quarterly revenue at the quarter end. We had just under 28,000 employees, up 4% year-on-year or 1% quarter-on-quarter. Looking at margin ratios for first quarter, gross margin was 60%. On a gross to gross basis, it increased 3.7 percentage points year-on-year and was broadly stable quarter-on-quarter. A year-over-year increase in gross margin was mainly driven by mix shift away from low margin e-commerce business. Non-GAAP operating margin was 42%. On a gross to gross basis, it was up 7.6 percentage points year-on-year and 3.5 percentage points quarter-on-quarter. Higher margins year-on-year was mainly due to higher gross margins and the decline in selling and marketing expenses as a proportion of total revenues. The sequential uptick was primarily due to a decline in operating expenses as a proportion of total revenues. Non-GAAP net margin was 31.9%. On a gross to gross basis, it is up 4.2 percentage points year-on-year and down 0.7 percentage points quarter-on-quarter. The higher net margin year-on-year was mainly due to higher operating margin partially offset by higher effective tax rate. The sequential dip in net margin resulted from higher effective tax rate. For the first quarter total CapEx was RMB1.3 billion, up 17% year-on-year or down 17% quarter-on-quarter. Operating CapEx was RMB656 million, down 27% year-on-year and up 11% quarter-on-quarter. Non-operating CapEx was RMB676 million, up 187% year-on-year and down 33% quarter-on-quarter. Free cash flow was RMB8.4 billion, up 52% year-on-year and down 9% quarter-on-quarter. Our net cash position at quarter end was RMB25.3 billion, down 26% year-on-year or up 11% quarter-on-quarter. Year-on-year decline in net cash was mainly due to strategic investments partly offset by an increase in free cash flows generated during the year. The fair market value of listed associates and available-for-sale investments were RMB74 billion at the quarter end. This concludes our presentation. Thank you.

[Operator Instructions] Your first question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi. Thank you for taking my questions and congrats on solid earnings. My first question is on the -- maybe on expense trend, it looks like the sales and marketing expenses for the quarter is a bit lower, maybe the sequential decline is more than the normal seasonality. Should we see that trend to continue or are we moving some of the expenses sequentially go to the COGS line, cost of goods sold on the other lines because they are more like maybe payment related spending on the -- just want to see what the general thoughts on sales and marketing or the COGS of other services going forward?

Yes. On the sales and marketing expense, the decline is mainly due to the fact that in the first quarter of last year there was a very big campaign for subsidy in relation to promoter or mobile payment solution. And this year the first quarter we do have that expense. Now having said that, I think one mobile payment is actually a very important strategic initiative for us. And second as you can see in the O-to-O space there is actually a very competitive landscape with a lot of companies often say this is in subsidies up to the consumers. And for some of those services there is actually a pretty good ability to promote our mobile payment solution. So I think now we have scale down that promotion on taxi-hailing, if there are other ways to which we can actually promote our mobile payment solution we will -- actually will impact that money in order for us to continue to build our mobile payment franchise.

And would that be book under sales marketing or would it be more under other cost line?

Sales marketing.

Sales marketing. Okay. Got it. Maybe if one of you can give us, I guess, maybe two minutes ago, I asked the same questions about, are there any updates on maybe the preference based advertising on the Moments area, I guess, the restructuring, I don’t know any and more testing? What kind of visibility do you have for that area, as well as maybe some of the kind of the performance from the official accounts, if you can share some of the parts that’ll be great? Thanks.

I think as we motioned in the prepared remarks, we are very happy and more importantly, the advertisers are very happy with the results of the first sequence of that trade expense that occurred in the first quarter. And because its performance advertising we can kind of quantify their happiness through looking at engagement metrics, viral shares, actual actions undertaken and so forth. So given the advertiser happiness, we are going to be progressively expanding the number of advertise -- range of advertising formats and so when as we move through the year. With regards to the restructuring internally, we thought it was important to create the advertising platform with the most simplicity and that was the greatest liquidity and in order to facilitate that consolidation we actually took two teams and products we previously separated and unified them into a single team, with a single product that was adds across all of our performance in advertising inventory.

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

Good evening. Thank you for taking my questions. I have a follow-up question on your performance based advertising submission? Could you give us a little bit more color on the advertisers you expect to have going into the future? Do you expect the advertiser base to continue to be very different and your brand advertising submissions? Is there any opportunity to bring from those large brand advertisers on your performance based adverting system? So that's my first question and the second which is a housekeeping question on your [Indiscernible] any updates on the revenue contribution of the mobile game portfolio, as well as the ARPU of different types of your games? Thank you.

I think with regard to whether our big brand advertisers will buy performance advertising. I mean, it’s a global trend that we’ve seen in United States and Europe that the brand advertisers are increasingly beginning to allocate some percents to their ad budget towards performance formats. And if you look our own results than we only had about a dozen advertisers on Weixin and Moments during the first quarter of 2015, but the majority of those, what kind of classic brand advertisers looking at advertising in a performance format. So, going forward we feel that there’ll be some of our ad inventory. For example, YingYongBao app store where the preponderance of the advertising they come from classic performance are into the advertisers such as e-commerce companies. And then there’ll be other ad inventories, perhaps, in Weixin and Moments where we‘ll have performance advertising coming from more -- advertisers who are more traditionally be brand advertisers. So what we believe that our performance advertising solution is increasingly suitable for increasingly broad range of the advertisers and maybe, I’ll pass the ARPU question on to John.

Yeah. For the MMOG they continue to approve, it’s between 295 to 395 for advanced casual game, it would fall in the range of 100 to 245 and in relation to smartphone games it will be within 155 to 165.

Thank you. Your next question comes from the line of Alicia Yap from Barclays. Please ask your question.

Hi. Good morning and good evening, everyone. Thanks for taking my questions. I just have a quick question on the smartphone games revenue. So it looks like, YingYongBao mobile browser contribute about RMB400 million revenue this quarter. I assume this mainly comes from the games revenue sharing. So how should we think about the app store revenue line and how meaningful will this grow into?

I think on the app store revenue line, we have a model somewhat similar to those of -- a couple of our listed competitors. And as of today, we have traffic activity that is similar to or greater than our competitors, but revenue that’s materially lower than our competitors. But over time, if we execute on monetization and our market share remains where it is then we should expect app store mobile game revenue QQ increase.

I see. Then, is there is any update on the Weixin Payment account in terms of traction and also the numbers of account? I think last quarter you guys mentioned about RMB100 million paying that’s linked to the bank account. Any update for this quarter especially after the Chinese New Year?

Yeah. After Chinese New Year -- number one, during Chinese New Year, we actually had a pretty big campaign around red envelopes. And that actually sort of add meaningfully to both the number of people who buying the accounts as well as the activity within the accounts. And then sort of after Chinese New Year, they showed consistent growth in terms of the number of people who buying their cards, because not only we have person-to-person transactions, we also have an increasing number of merchants who are using the payment solution. For mobile payment solutions, it’s actually sort of a two ended platform. You need to have more merchants than you can actually attract more users using it and having more users you can actually attract more, more merchants. So, I think we’ve seen a virtual cycle in terms of increasing the number of people who can pay and increasing number of merchants. So, the overall growth track is actually quite healthy.

Thank you. Your next question comes from the line of Alex Yao from J.P. Morgan. Please ask the question.

Hi. Good morning and good evening, everyone. Thank you for taking my question. The first question is to follow-up the previous question on moment monetization. James, you discussed the feedback from advertiser encouraging and they are happy. And now that you guys have already accomplished the restructure of internal ad system, what’s the strategy to release more inventory to larger number of advertisers into the next few quarters? And then the second question is, can you share with us the development of [indiscernible] as network on mobile? Do you booked that on gross revenue basis and the development there? Thank you.

Yeah. On mobile moment, I think we’ll continue to sort of develop it in a paced manner, I would say. Because I think in a -- very clearly, we know that there is a lot of traffic in the moments timeline. There are lot of people who pay a lot of attention, both in terms of number of videos, as well as the amount of time they spend on moment is actually sort of quite high. But what we want to do is actually to make sure that we have the right advertising format that one, we would sort of present a good user experience to users. Two, we want to make sure that we can actually sort of target the advertisements so that the efficiency actually increase. And third, we actually want the advertisement should be interesting enough that the users would actually share and say, you can consider an additional benefit. So, I think the first round of testing, right, you have confirmed that we were able to create these elements but we also have continued room to improve. In particular, sort of how exactly we can actually make the creation of this advertisement more efficient and sort of coming with standardized format so that advertisers can actually come out of these ads in a faster manner. I think it’s an important aspect. So, I think that’s sort of one thing that we’re doing. The other thing is actually sort of testing on other formats of advertising, so that it has - they can provide the same elements, right, good response from the users, good exposure for the advertisers and also sort of having the bio-effect. So we’ll also work on that. So overtime what you can see is there will be increasing number of advertisers. There will also be an increasing number of ad formats that will be added and then sort of the performance metrics both, in terms of targeting, in terms of bio effect, hopefully we’ll continue to increase as well.

I think in relation to the ad network we book on that basis. Sorry, its cross enough to ….

Yeah. Consistent with industry practice, we book ad network advertising on a gross basis, which both, our domestic and local players do.

Yeah. Thank you. Next question please.

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

Thank you, management and congratulations for solid quarter. I have two questions, number one is what contributed to the sequential jump in the other revenue category? And how much of this was contributed by eCommerce? And how much was from online payment? And gross margin of this segment declined to 19% and how should we think about this going into the rest of the quarter. Can management give us some what color please? I have second question after this one.

In relation to the other revenue, few big components, one of which would be obviously, the eCommerce transaction, which have been moved from the eCommerce segment to others. And other than there are also revenue generated from [Indiscernible] payment surfaces, as well as some virtual eCommerce transactions, as well as some enterprise software revenue. And in terms of margin because it’s a mixture of a lot of things, so at this point in time, it would fluctuate quarter-over-quarters.

Thank you. And in terms of advertising gross margin trajectory, it’s given the launch of performance based advertising typically is higher margin. Can the management give us some more color of how we should look at this? And particularly, we have seen after Facebook launch performance based advertising, the gross margin started to trend up. Would this also apply to Tencent? Thank you.

If you look at our advertising business, we have a traditional portal business, which is not becoming a news up business where margin should have been relatively stable over time. Then we’ve led on a video business, where margins have been very negative and now improving but still remains to drive on profitability. And then within the performance advertising business, the substantial component is on our own inventory where the incremental margins have been rather high because we’re already bearing the content cost. And at some portion is the affiliate ad network where the margins should be lower because we would share the revenue with affiliate ad network partners.

Great. Thank you. Your next question comes from the line of Erica-Poon Werkun from UBS. Please ask your question. Erica-Poon Werkun: Yes. Hi. Thank you. Just want to have a quick follow-up on the Moments advertising whether you can just share with us in the first quarter how much is contributed to revenue? Second question is on just the breakdown on your advertising revenue and how much of that was coming from video? Thank you.

I think that, if you look at brand advertising revenue then a substantial portion banks and very much of the growth comes from video. On the performance side, we won’t disclose advertising product-by-product because there is a lot of products, but we did say that the sequential growth was driven notably by Mobile Qzone, Weixin official accounts and YingYongBao. So while we are excited about Weixin and Moments advertising, we only had a dozen advertisers in the first quarter and we are still in very early stage of deploying that whereas we also have lots of room to grow inventory and grow click through rates into grow revenue on some of our other properties including Qzone, Weixin official accounts and YingYongBao app store. Erica-Poon Werkun: Thank you.

Next question, please?

Thank you. Your next question comes from the line of Chi Tsang from HSBC. Please ask your question.

Great. Thank you so much for taking my question. My first question is, I was wondering if you guys can give us an update on your initiatives on WeBank? And secondly, I was wondering if you can give us sort of an update on your expectations for your smartphone game portfolio for the balance of the year, in particular the mix between licensed and in-house and casual and mid-core? Thank you so much.

In terms of WeBank, I think, there is some, not that much to update. I think we have talked about many times it’s going to be sort a bank corporation platform with banking license. It will be more focused on picking up the credit need of our VAS mobile users, as well as seasonal enterprises and it will be based on sort of our understanding of the users, if the users so required where we can actually sort of leverage that understandings due to dynamic pricing of their credit and we sort of been able to those credit to our corporation banks for money to be lend to these users. So this setup requires actually a lot of way in terms of coming up with the product, coming up with the right way to reach the users, coming up with right way to sort of determine credit for these users. So we are in the process of actually designing these products and also sort of on a very limited basis testing some of these products among the users. So I think I can’t give an update on that. But building a bank actually requires a pretty long time and especially for building a bank with sort of such a distinctive positioning actually requires a lot of patience. So I think we have given a quite a bit of time for it come up with the right product and right technology. So that’s on WeBank. In terms of games, why don’t James talk about it?

Okay. I mean, I will start with history and finish with future. But historically when we started launching smartphone games integrated with Weixin and Mobile QQ, our primary objective was to train consumers who previously weren’t playing smartphone games, don’t playing any games to begin doing so and in order to do that we initially focused on developing relatively casual mass appeal games ourselves. And we are pretty happy with trajectory. We have discussed that over 100 million people that play our mobile games everyday which is -- it's more than double the number of people playing PC games everyday. Through last year we thought the market is beginning to evolve and that it was important that we provide an attractive venue for third-party games and also we provide our users with -- there should be more mid-core games. So the second half of last year moving into early this year we have put advantage into securing third-party game licenses and publishing some successful mid-core games such as IMPQ or [indiscernible] and so forth. Sitting here today, we believe the market will continue to evolving in multiple directions and therefore, we want all of the above. We continue to develop many games internally in increasing number. We continue to license many games. We have some realty casual games in the portfolio, which intended to educate our users on the joys of gaming and also serve those value this, who want the casual game experience and let me have some more mid-core games in the portfolio. Today, we’re in a position where we have somewhere in the region of half of the mobile game market. But if you look at it on a category-by-category basis then there are certain genres which were essentially pioneered and created ourselves, lot like mobile shooting games and like other genres where we actually have very low market share and we’re looking forward to really seeing good games that can increase our market share.

Thank you. Your next question comes from the line of Vivian Hao from Deutsche Bank. Please ask your question.

Hi. Thank you for taking my question. I have two quick questions. First of all, regarding the organizational streamlining for our advertising -- retail advertising business. Can Martin please provide some more color on incoming execution plans for this, Martin, more specifically? What are the key differences before and after this integration for advertisers? I have another question after this one. Thank you.

Yeah. Basically -- organization basically just will combine three things into one. It’s essentially sort of new combined platforms into one performance-driven based platform. And so both from the advertiser’s perspective, there will be one platform for them to put money into. Internally, all the different media platforms or traffic platforms will be facing one platform and also sort of data that we own will sort of unified so that it will actually achieve the best results in terms of document users. So those are the key differences.

Right. So we meant to make it more user friendly, that would be the key purpose for this one?

Yeah. We talk about the three new elements. So from a user friendly and advertising perspective, it will be sort of more unified from an internal communication perspective and also sort of from a product and technology development perspective, it will be one platform rather than two platform.

Okay. Understood. There is a second question, actually related to this. What is this, if it’s possible, if management can also give us some rough idea in terms of the CPC level and also the revenue sharing scheme for the WeChat public account owners we’re offering right now?

I mean, generally, the CPC trend, I mean, the CPC level is to relatively low when compared to sort of the other performance based ads. And the CPC level in terms of trend has been trending up as we continue to improve our pocketing technology. In terms of revenue share with all the accounts, it’s evolving situation. We have initially, sort of, tried to provide more advertisers significant to all accountings so that we can actually incentivize more and more third parties to put up advertising. Owner timing we start to discover sort of your -- there are -- the traffic are not sort of accrued too completely because there are certain accounts that are sort of your original content. There are certain accounts which are sort of less original in terms of content, right. So over time, I think it will refine the revenue sharing mechanisms so that we will ascribe more revenue share to all the account that are actually providing the most original content as well as most incremental value whereas we may actually sort of reduce some of the revenue share to the guys who are just sort of, taking other people’s content and putting onto their official accounts. So it will become a much, much more sophisticated system in order to try to sort of grow this ecosystem.

Thank you. Your next question comes from the line of Jin Yoon from Mizuho Securities. Please ask your question.

Hi. Good evening. When you say that advertisers seem happy with the results from performance-based ads, how are you comping performance based ads in China with? Is it performance relative to ROI to other social media companies globally or is it comping into search? Can you kind of provide some color on that and I have a follow-up as well?

Well, one, it has to be sort of compared to China right now. I think the advertisers are offered in China. So they have certain expectation of a campaign and these are sort of the advertisers who have very experienced marketing team where they have essentially running campaigns across all different platforms. And usually what will happen is they have certain expectation on a certain amount of money to be spend on how much result will be achieved and what happens is, I think where the moments advertising had going into all of these matrixes and exceeding their expectation.

Got it. And John, just to follow-up on your previous comment, you talked about the importance of the ad engagement, providing ads that are more engaging for the consumer. So are all the ads on WeChat now made it are unique ads and how much is Tencent involved in the creative process, or is that all from the advertisers themselves?

Number one is we are in the early moments at that original and number two, in the very initial stage where we are actually involved in the creation of these ads because we want to make sure that the ad formats know something that’s sort of in line with what a consumers’ expectation of what moments represent. All the time that we said in order for this to scale, we actually have to somewhat standardize it, right. So, we are in the process of helping the advertisers as well as there are lot of ad agencies now. We have to standardize these ads, so that’s sort of where we can actually come with a different format. We can come up with sort of certain elements. We can come up with a quality standard and the good thing is we can also include test on some of the ads, right. So it’s actually effective than where we can sort of broaden the exposure. So there are lots of things that we are doing in order to standardize the ads so that the production of these ads can be done on a scale basis.

Great. Thanks for that detail. Thank you.

Thank you, Operator. In interest of time, we shall take the last three questions please.

Certainly. Your next question comes from the line of Wendy Huang from Macquarie. Please ask the questions.

Thank you. My first question is on the recently announced TOS. So what’s the rationale behind to start developing the operating system this year and how will this structure change Tencent mobile ecosystem in the long-term? My second question is on the mobile game. In April, I think China Mobile actually closed down its payment channel in several provinces. So according to some media report, this actually resulted in the 30% decline in the whole mobile game industry rank. So is Tencent being affected? If that’s the case and how should we actually read your QQ's mobile game value as well as the seasonality on the mobile games? Thank you.

On TOS, it’s really mainly an extension of our one initiative. Our TOS is really sort of leveraging Android then they are providing a layer that has sort of deep integration with Android on one hand and on the other hand with a range of services that we will provide. And we also create a framework such that it can be used for different hardware like it can be done for mobile phones but it can also be used for watch or for virtual reality glasses and over time for other devices to people they come up. So that’s what we have done. I think we leveraged quite a bit on the technology know-how that we have developed, both from sort of new gallery system and technology where such as one, such as our browsers, such as our security technology. And then on the other hand, we have a broad range of applications which are widely used by consumers. So the connections that we will provide the APIs to make much better connection with these applications. So far I think we have received quite an enthusiastic response from the industry. A lot of hardware manufacturers are interested in exploring cooperation with us based on U.S. It is still an early initiative, but sort of I think you will -- it’s a good aggregation of many technologies that we have developed over the -- now that bring into one framework that we can bring to the hardware industry and in a systematic way. On the mobile games, I don’t think we have seen much impact. Actually, we had not really paid attention this is the first time I heard about.

Thank you.

Thank you. Your next question comes from the line of [Ming Jao from Edisons Research] [ph]. Please ask your question.

Thank you. I have got two questions. First question is on your mobile gaming. So if we look at last quarter’s performance on QQ games and Weixin game, I mean they are pretty healthy, but they kind of look warm. Why is that? Why is because the mobile gaming industry is still very short history. So this kind of trajectory seems to little bit less steep than expected. Do you see it because of the overall market is maturing? Or maybe give us your thoughts, do you think this mobile gaming market is a bigger or smaller market than the PC gaming? That’s the first question. The second question is your video ads are doing great. My question is on your digital content strategy. Can you give us more color about users paying for movies, your initiatives in literature, music and so on, so forth? Thank you.

Okay. On the mobile games, I think we reported 8% sequential revenue growth for overall mobile game business. So while that certainly cooler than the double-digit sequential growth rates that we were generating a year ago, I think it’s still relatively comfortably warm for us. And we do not see the industry is at a late maturation today given it’s couple of years old and very early in terms of moving game genres from PC to mobile. In terms of the long-term size of the market, I think again it depends heavily on how successfully different game genres moved from PC to mobile, particularly some of the higher ARPU game genres. What we know for sure today as I mentioned earlier is the number of people playing mobile games in much greater than the number of people playing PC games. And so if the right gaming experiences can be brought to them, then the monetization and revenue would follow. But that may take many years to fully transpire. So I guess that’s our view on mobile games On the digital content strategy, that was something we outlined as one of focal points for 2015 and we have been investing against searching. I think the products you mentioned DDR, music, literature, growing very growth depending partly on the timing with which we add new content. So for example in the first quarter we started to see the benefit of our HBO relationship, which was for us in a very popular shows like Game of Thrones for the first time to internet users in China and that’s been very well received by our subscribers and users. And then as we move through the year, we will have other exclusive content such as the NBA basketball games joining our platform as well.

Thank you. Our last question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question.

Thank you. On the mobile gaming revenues itself, should I be taking out the revenues that you are earning from the app store, which is about 400 million. If I do that, then the sequential growth rates become narrow. Is that the right way to be thinking about it? And also on the relationship with JV, the first the previous quarter relation looked like it was very strong. Could you share with us your thoughts on the partnership with JV? Thank you.

I think on the games side, if you exclude the portion related to YingYongBao and other distribution channels and also those games will be published on to -- in iOS that are not linked to mobile QQ or Weixin. Then the mobile game revenue still increased by a single-digit -- mid-single-digit percentage quarter-on-quarter. So again, that’s not the pace which our mobile game revenue is increasing a year ago, but we think it’s reasonable rate of increase and we’ll be happy with it. For the JV question.

Yes. For JV, I think we’re still in the process of sort of continuing to create more synergies out of the relationship. So whatever level of a value that sort of you had seen in the previous quarter, a trend is actually setting you to magnify it all the time. I think so far what we have seen is two kind of entry point within our platform. We have been able to bring a lot of users, particularly the users who are on mobile platform and who are in cities that have not been active users of JV yet, because their delivery network has not been covering those. But sort of over time, it’s expanding to cover these cities. And our platform had been able to bring these users to be first time user of JV services. And over time they may actually continue to visit JV and byproducts on our platform, but they also sort of install a JV app, and they get sort of loyal enough and stop buying from the JV app. But I think to the extent that we can actually convert users and help them to grow their overall user coverage, that’s I think one thing that’s already having a lot of value. And over time, we are also -- our app network can also sort of bring new users to JV because JV is actually a pretty big advertiser on our platform and they serve as an aggregate of a lot of the emergence. And all together, right, they’re putting ads on our networks, they’re bringing users two dimensions but also sort of in the process of doing more fidelity with JVs eCommerce platform. And we are also testing on new ways to bring social traffic into the eCommerce. So I think that continue to progress pretty well.

Thank you, Martin. Thank you, Operator. We’re winding up the call now. If you wish to check our press release and our financial information, please visit our corporate website at www.tencent.com/ir. We will post the replay of this webcast on our site shortly. Thank you and see you next quarter.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating Tencent Holdings Limited 2015 first quarter results announcement conference call. You may all disconnect now.