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

Wendy Huang - Macquarie Eddie Leung - Merrill Lynch Chi Tsang - HSBC Dick Wei - Credit Suisse Ming Xu - UBS John Choi - Daiwa Securities Thomas Chong - Citigroup Ming Zhao - 86Research

Thank you for standing by and welcome to the Tencent Holdings Limited 2015 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 would now like to turn 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 the full year of 2015. I am 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. 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 non-GAAP measures, please refer to our disclosure documents 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 discuss strategic highlights, James will speak to business review, and John will go through the financials before we take your questions. I will now turn the call over to Pony.

Okay. Thank you, Catherine. Good evening, everyone. Thank you for joining us. In 2015, we made good progress in executing our Connection strategy, which positioned us to capture market opportunities brought by mobile internet. As I walk through four strategic areas, they are shaping Tencent’s businesses over the long run. In social, Weixin grew users and connected to a wide portfolio of online and offline services. QQ maintained year-on-year user growth, particularly among the youth segments. Both products serve as a strong distribution platform for our games and digital content offerings, both generally massive on our volume of traffic to feed our social advertising business, which doubled its revenues year-on-year. In games, we sustained rapid revenue growth for smartphone games. We maintained leadership in key PC game environments. We are also developing eSports tournaments, which help to build fan committees and reinforce gamers’ loyalty. In media and content, digital consumption via smartphone, especially of new sports and video content strengthened the traffic leadership of our platforms. We began to monetize our mobile news service via in-feed app and we are building our subscription businesses for premium content served on our leading video, literature and music platforms. Looking at our broader ecosystem, we further developed our partner network via Official Accounts system and grew our mobile payment Monthly Active User 7x year-on-year. For our Internet financial business, finance business, we worked with select partners to broaden our wealth management products portfolio on the title and introduced micro-loans through the bank. Financially, we delivered a strong set of results for the fourth quarter and full year of 2015. Let me highlight a few numbers for you. For the fourth quarter of 2015, total revenue was RMB30.4 billion, up 45% year-on-year and 14% quarter-on-quarter. Non-GAAP operating profit was RMB11.5 billion, up 43% year-on-year and 10% quarter-on-quarter. Non-GAAP net profit to shareholders was RMB9.0 billion, up 28% year-on-year and 8% quarter-on-quarter. For the full year of 2015, total revenue was RMB103 billion, up 30% year-on-year. Non-GAAP operating profit was RMB42 billion, up 37% year-on-year. Non-GAAP net profit for shareholders were RMB32 billion, up 31% year-on-year. Operationally, our key platforms retained sector leadership. Total MAU for QQ increased 5% year-on-year to 853 million, within which smart devices MAU was 642 million, up 11% year-on-year. We are seeing a reach average combined MAU of 697 million, up 39% year-on-year. For Qzone smart devices, MAU rose 6% year-on-year to 573 million. We maintained our leadership as the largest operator and publishing platform for PC client games and established clear leadership in several types of smartphone games. Our media business continued to grow supported by increasing traffic from our user base, deep user insight and our expanding catalogue of exclusively licensed and in-house content. Our new services continue to lead by daily active users and video platforms by mobile video views. In mobile utilities, we expand market leadership in mobile security, mobile plaza and Android-based apps in China. I now invite Martin to discuss strategic highlights.

Thank you, Pony. Good evening and good morning. Our Connection strategy has really extended Weixin and Mobile QQ from being social key communication tools to becoming platforms for games, publishing, social advertising and premium content distribution and provisioning of other online services. I will discuss in my section our strategies to build out each one of these businesses. In games publishing, we are leveraging our PC game expertise and mobile traffic to deliver high-performing mobile games across different genres. In shooter and mobile genres, we extended our leadership from PC to mobile with new releases, including Cross Fire mobile and Wii mobile. In RPG, we achieved initial success with the Legend of MIR 2 as developed by our partner developer. We are able to attract new gamers to our mobile platform and we observed limited average impact on users in revenue due to a cannibalization on our PC similar titles. We are fostering partnerships with game developers globally to bring best-in-class mobile games to our users. Game developers typically prefer to work with us, because we can leverage our large user base and social grab to distribute games to a broad audience and run user targeted marketing campaigns. Many leading PC game developers view Tencent as the partner of choice for publishing their next mobile title in China. These partnerships will enrich our existing pipeline, which include games we developed based on popular game titles as well as comic IPs. Running a well diversified portfolio of game titles is important in our view, because the lifecycles of mobile games tend to be shorter than PC games. As it relates to social advertising opportunities, during 2015, we made progress in building our social advertising business, which is becoming a mainstream sizable market opportunity globally. Compared with traditional online advertising, social advertising is less intrusive, and if done properly, can trigger viral sharing in our social platforms. We are growing this business in four ways. Firstly, we are developing advanced data mining look-alike and retargeting technologies that support enhanced audience profiling and targeting capabilities to drive ad engagement and conversion. Secondly, to attract a bigger share of top advertisers online app spend, we are creating new ad formats that support brand storytelling. We also formed dedicated sales teams to serve key accounts with customized solutions. Thirdly, to serve a growing base of long-tail advertisers, we are developing new audience targeting solutions for specific industries and increasing the types of ads sold through our sales service platform. Last, but not least, we are gradually releasing inventories, while balancing user experience with ad load performance. We view social advertising as a long-term opportunity and we will build it with patience to make sure that we get things right. Moving on to digital content services, the increasing user demand for quality content and on-demand content access, as well as improving copyright protection in the digital environment are creating a market for paid premium content in China. As pirate activities diminish, content suppliers are making new content available online sooner. App stores and standalone apps offer better mechanism for copyright protection as opposed to the previous webpage architecture. We are also cultivating this market environment via paid services for premium content served on our video, music and literature platforms. While all of these businesses are still in investment mode financially for us, we believe premium content paid services will help us cope with the increasing content costs over the longer run. For premium movies and video programs, we charge either a monthly subscription or a pay-per-view fee. During 2015, we made heavy investments that expanded our library of exclusive premium videos, which led to a six-fold increase in our video subscriptions year-on-year. In music, we are in the early stage of moving the industry towards a free basic plus subscription premium model, with a leading master licensor of music copyrights in China in terms of number of songs. In the second half of 2015, we started licensing the content to key online music providers who support an industry-wide transition towards paid package. For online literature, we are currently the largest digital publisher by user and by revenue and we will publish over 80% of the most popular online literature in China. We are also cultivating the commercial value of our vast IP library through participating in game, drama, movie and animation productions. I am going to round up my section with an update on our Internet Plus strategy. Connecting more digital content and broader types of offline to online services is helping our social apps to make users like more convenient. Users are gaining broader access to e-commerce and O2O services as we support our strategic partners to grow their product offering and service level. We are making local public services, such as healthcare, transportation, utilities and municipal government services more accessible to users. We are also adding functionalities that facilitate online bookings, purchases, order tracking and other transactional services through Official Accounts and our mobile payment solutions. We believe creating a vibrant ecosystem will help us drive payment adoption and transaction volume. This, in turn will position our payment platforms as a launch pad for online financial transactions, such as wealth management and consumer lending over the longer run. So with that, I will pass to James to talk about business review.

Thank you, Martin. In the fourth quarter of 2015, our revenue grew 45% year-on-year. Value added services represented 76% of our revenue with image online games contributed 53% and social networks 23%. Online advertising was 19% of our revenue, up from 12% last year. For the full year, our revenue grew 30% year-on-year or 38% excluding e-commerce transactions. Value added service revenue was RMB23.1 billion, up 35% year-on-year and up 12% quarter-on-quarter. Our social networks revenue was RMB7.1 billion, up 37% year-on-year and up 14% quarter-on-quarter. Monthly subscriptions increased notably for our digital content offerings. Paid music downloads boosted growth in our premium music subscriptions. And the drama series, Country Romance Season 8, drove premium video subscriptions. Online game revenue was RMB16 billion, up 33% year-on-year and up 11% quarter-on-quarter. Mobile and PC game revenue each increased both year-on-year and sequentially. For the full year of 2015, VAS revenue was up 27% on a reported basis and up 24% on a gross-to-gross basis. Looking at social networks, we took several initiatives to deepen engagement within the QQ community during the quarter. For example, our revenue sharing scheme to incentivize QQ group activity. Under this scheme, group organizers received a share of in-group spending and gifting, also facilitating third-parties to share video content within the Qzone news feed more effectively. For Weixin, we continued to develop our official account ecosystem and expand use cases. The number of Official Accounts doubled year-on-year to approximately RMB20 million and enterprise accounts allowed us to penetrate new verticals, such as logistics, real estate and store management. On social payment, red envelope gifting over Mobile QQ and Weixin has become a widespread component of holiday greetings in China. Leveraging user activity on our social platforms, we ran a successful Chinese New Year campaign in February. The total number of red envelopes exchanged by our Mobile QQ was 6 billion and via Weixin was 32 billion. Moving to PC client games, active concurrent users for our advanced casual games grew 7% year-on-year to 7.8 million, primarily due to existing games, while average concurrent users for massively multi-player games grew 3% year-on-year to 1.7 million, primarily due to new titles. In battle arena games, League of Legends ran several highly popular sports events, deepening user engagement and we increased paying user activity through in-game promotions. In shooter games, we released new items in a [indiscernible] which drove up ARPU and new content Call of Duty online, which boosted usage. In role-playing games, our recently launched titles such as Moonlight Blade and Arcade [ph], contributed to growth in paying users and revenue. We believe we possess a rich PC game pipeline including titles, such as monster – I am sorry, Master Cross Master, battle arena game, MapleStory 2, a side-scrolling RPG, Orcs Must Die, a tower defense game; and War Thunder, a combat game. With smartphone games, in the fourth quarter our smartphone game portfolio generated RMB7.1 billion revenue, up 72% year-on-year and up 33% quarter-on-quarter. We are the market leader in many popular genres, including shooter games, mobile games, ARPG, card RPG and puzzle games. We are seeking to enrich our smartphone gamer experience, first by aligning up a diversified portfolio of strong IPs based on PC games and comics that provide inspiration for new mobile games. For example, we published mobile games based on the cross fire PC game and on the Naruto animated series, see good consumer response. Secondly by expanding to new game genres. And thirdly by developing community and e-sports cultures around mobile games. In our recent game center upgrade, we bundled video replays into the game apps themselves and enhanced the community management tools to the in-game tribes and guilds. Given our operating strength and proven ability to grow communities and revenue, we believe we are the China publishing partner of choice to game developers, locally and globally. For example, we have mobile game publishing relationships with Shanda, Kingsoft, Giant and a range of international game developers. Moving on to online advertising, segment revenue was RMB5.7 billion, up 118% year-on-year and up 16% sequentially. Brand advertising revenue was RMB2.8 billion, up 89% year-on-year and 10% sequentially. We increased sell-through of mobile news inventory by paid fees, driving the sequential revenue growth during what’s historically a seasonally weak quarter for our brand ad business. Our video ad revenues more than doubled year-on-year, they were down slightly Q-on-Q due to the high base from the Voice of China fall program last quarter. Our performance advertising revenue was RMB2.9 billion, up 157% year-on-year and up 22% quarter-on-quarter. New ad formats and increased mobile impressions volume delivered year-on-year revenue growth. Also, we selected the increased ad loads in Qzone and Moments to coincide with the e-commerce peak season during the fourth quarter. For the full year 2015, our advertising revenue was RMB17.5 billion, up 110% year-on-year. Looking into 2016, we have seen a tougher macro environment may have some negative impact on the overall advertising industry, including our business within it. Revealing some our leading ad properties, in news we shifted mobile inventory from banner into paid fees, which boosted average CPM and improved sell-through rate. In video, our mobile daily video views nearly doubled year-on-year, thanks to our expanding catalog of popular content. As the NBA’s exclusive partner in China, we helped launch the season in October with several high-profile events and we estimate that average online viewership per NBA game, aggregating all platforms across the industry has doubled year-on-year since we became exclusive partner. In social, we enhanced our audience profiling capability by look-alike to Qzone, an LBS targeting technology for Weixin were added new ad formats such as order and play video and eCoupons. And our Official Accounts grew impression volume and gained wallet share from top advertisers. And with that, I will pass on to John to discuss the financials.

Thanks, James. Hello, everyone. For the fourth quarter of 2015, our total revenue was RMB30.4 billion, up 45% year-on-year and 14% quarter-on-quarter. Gross profit was RMB17.8 billion, up 41% year-on-year or 14% sequentially. Net other gains, was RMB249 million in the quarter. Operating profit was RMB10.9 billion, up 47% year-on-year or 5% quarter-on-quarter. Share of losses of associates and joint ventures was RMB1.3 billion for the quarter. The year-on-year increased mainly reflected higher losses from associates on a non-GAAP basis. Share of losses of associates and joint ventures was RMB164 million. Income tax expenses were RMB2 billion, up 124% year-on-year or 28% quarter-on-quarter. Effective tax rate was 21.7% for the fourth quarter and 19.6% for the full year 2015. Net profit attributable to shareholders was RMB7.2 billion, up 22% year-on-year or down 4% quarter-on-quarter. GAAP diluted EPS was RMB0.759. Non-GAAP diluted EPS was RMB0.949. For the full year 2015, total revenue was RMB102.9 billion, up 30% from 2014. Gross profit was RMB61.2 billion, up 27% from 2014. Operating profit was RMB40.6 billion, up 33% from 2014. Net profit attributable to shareholders was RMB28.8 billion, up 21% from 2014. After adjustments to non-GAAP, operating profit for the fourth quarter was RMB11.5 billion, up 43% year-on-year or 10% quarter-on-quarter. Net profit attributable to shareholders was RMB9 billion, up 28% year-on-year or up 8% quarter-on-quarter. Operating margin was 38%, stable year-on-year or down 2 percentage points quarter-on-quarter. Net margin was 30%, down 4 percentage points year-on-year or 2 percentage points quarter-on-quarter. For the full year 2015, non-GAAP operating profit was RMB41.8 billion, up 37% from 2014. Non-GAAP operating margin was 41%, up 2 percentage points. Non-GAAP net profit attributable to shareholders was RMB32.4 billion, up 31%. Non-GAAP net margin was 32% and stable compared to last year. Let’s turn to segment gross margin. For the fourth quarter, gross margin for value added services was 64% stable year-on-year and quarter-on-quarter. Gross margin for online advertising was 51%, up 11 percentage points year-on-year and 2 percentage points quarter-on-quarter. Social advertising revenue, especially from mobile contributed to best margins. For the full year 2015, gross margin for VAS was 65%, but on a gross-to-gross basis, it was down 1 percentage point from last year. Gross margin for online advertising increased 5 percentage points to 49%. Moving on to operating expenses. In the fourth quarter, selling and marketing expenses was RMB3 billion, up 47% year-on-year and up 48% quarter-on-quarter. Higher marketing income spending on smartphone games, literature and mobile news services contributed to both year-on-year and quarter-on-quarter increase. In addition, the quarter-on-quarter increase was primarily affected by seasonality. Selling and marketing expense was 10% of quarterly revenue. Included in the G&A, R&D expense was RMB2.5 billion, up 15% year-on-year and 1% quarter-on-quarter. Total G&A expense was RMB4.8 billion, up 20% year-on-year and up 9% quarter-on-quarter. R&D represented 8% of quarterly revenue and total G&A was up 16%. Share-based compensation is around 3% of quarterly revenue. On a full year basis, selling and marketing expense was RMB8 billion, up 3% from 2014 and represented 8% of revenue. R&D expense was RMB9 billion, up 19% from 2014 and represented 9% of revenues. Total G&A was RMB16.8 billion, up 19% over 2014 and represented 16% of revenue. As of quarter end, we had about 30,600 employees, up 11% year-on-year or 2% quarter-on-quarter. Let’s go through our margin ratios for the fourth quarter. Gross margin dipped 1.9 percentage points year-on-year to 58.4% mainly due to increasing bank handling fees incurred from C2C money transfer in our mobile payment platforms. Gross margin was stable sequentially. Non-GAAP operating margin was 37.9%, which was pretty stable year-on-year. Sequentially, it dipped 1.6 percentage points, primarily due to higher selling and marketing expenses partially offset by lower G&A expenses. Non-GAAP net margin was 29.6%, which decreased 4.2 percentage points year-on-year and 2.2 percentage points quarter-on-quarter. The year-to-year decrease was due to higher income tax expenses and higher share of loss from associates. The sequential dip was mainly due to higher selling and marketing expenses. Turning to earnings per share and proposed dividend for 2015, GAAP basic EPS was RMB3.097 and diluted was RMB3.055. Non-GAAP basic EPS was RMB3.485 and diluted was RMB3.437. Subject to the approval of shareholders at the AGM to be held on May 18, 2016, we are proposing an annual dividend of HKD0.47 per share. Finally, let me share a few key financial metrics with you. Total CapEx was RMB1.9 billion for the fourth quarter, up 17% year-over-year or 14% quarter-on-quarter. Operating CapEx was RMB1.3 billion and non-operating CapEx was RMB586 million. Free cash flow for the fourth quarter reached RMB16.2 billion, up 76% year-on-year or 144% quarter-on-quarter, which was mainly attributable to the increase of operating cash flow from our gains and advertising businesses. Our net cash position was RMB19.1 billion, down 16% year-on-year or 10% quarter-on-quarter. The negative year-to-year comparison was mainly due to payments for licensed content, dividends and M&A partially offset by free cash flow generated during the year. The valuation of our U.S. dollar denominated that’s also contributed to the decrease. The fair amount value of our listed associates and available-for-sale financial assets were approximately RMB98 billion. That concludes our presentation. Thank you.

Thank you. We shall open the floor for questions now. Operator, we will take one main question and one follow-up question each time. Shall we invite the first question now? Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Wendy Huang from Macquarie. Please ask your questions.

Thank you for taking my question. My first question is about your broad Internet finance business, you mentioned mobile payment MAU increased significantly. So, what’s the absolute number for that mobile payment MAU? And also what kind of revenue model that you were trying to build around your Internet finance business?

Okay. Well, in terms of MAU, we have never disclosed it and sort of we are not providing the exact number. I think we tried to provide their relative [indiscernible] give you some color on sort of the growth of the activity. In the past, we have announced that our total number of COGS was more than 200 million. Now, the number is safely more than 300 million. So, I think this should give you a sense of the continued growth of both the number of users as well as the level of activity. In terms of mobile payment, it’s interesting that you asked the question, because it was actually generating losses and the loss has been sort of accelerating at a very fast clip as the level of activity increased, because as the payment platform, we actually sort of knew, have to pay the bank a certain handling fee when user move their money into the payment system. And when it’s actually used for merchant payments and sort of we get some revenue from the merchants, but it’s actually sort of a user-to-user transfer, then we don’t receive any fees. So, that’s why it was actually generating loss. And recently, I think we actually have told the public that in the month of January, the amount of bank handling fee that we pay minus the amount of money that we get from the users actually exceed 300 million a month. So, it’s actually sort of a pretty significant number. And as a result, we announced on March 1 that we have to put on a fee when people extract money out from the payment platform on to their bank card. So, this measure is actually help us to contain the cost. Now, in terms of what we see as the revenue model for payment platform, I think number one, when the payment is actually to merchant, then we actually charge merchants a certain fee and that’s actually sort of – that’s more than able to cover our bank handling charge. Now because of competition, sometimes we actually have to reduce the fee and even sort of subsidize some of the merchants. So as a result, we actually believe that the payment platform itself is not going to be a profitable business, but what’s the value actually to us. The value of the payment platform is that there is a lot of activities that can happen. It will benefit our overall ecosystem. And when we actually sort of try to make our ecosystem a diverse one and when we start to put advertising into our ecosystem, then sort of you are having the ability to pay actually helps make the advertising more valuable to merchants. And also, we believe in the longer term having the payment pathway actually help us to secure very important launch pad of online financial transactions, for example, our wealth management platform title and our consumer lending business in our affiliated Wii bank actually rely on the fact that we have a lot of people active on our payment platform, a lot of people who have binded their bank cards to the Weixin and to their QQ accounts. And when we have that then sort of being able to identify these as potential customers and directed them to the online financial applications will be much easier.

Thanks, Marty. My second question is about your advertising business. So, on the revenue front, you mentioned that mobile advertising already accounted for 65% of the total revenue, total advertising revenue in 2015. I just wonder what kind of pricing that mobile is at the moment, whether CPM is still at a discount to PC CPM or it has already exceeded the PC CPM due to its more tuck-in nature? And also how do you see your advertising model to develop differently from Facebook down the road? So, on the cost side, I think in the past two quarters, you actually mentioned about the worth of China and also NBA cost in the Q4. Given the uncertain competition in the video market, how should we look at 2016’s cost? Thank you.

Yes. On advertising – mobile advertising, well, PC advertising sort of has got a very, I would say, bipolar type of inventory composition, right? There is the homepage and then there is everything else. The homepage typically sort of sells very well and sort of commands a high CPM, but then sort of very quickly, when you go to sort of the deeper pages, then the advertising – the CPM drops significantly. Now, on mobile, what we are seeing is that because we can do it on the feet and because we can actually sort of get the advertising in a more talkative way as you said, the CPM that we get on the different type of pages is actually sort of not that different. So, that’s why on an aggregate basis actually so we will say the mobile platform is a better place to put advertising. And what you may not be able to comment exactly the same CPM as front page, but sort of there is actually much more inventories that you can sell that could command a respectable CPM in terms of content cost.

In terms of the content costs, we mentioned that video advertising grew more than 100% year-on-year and video subscriptions grew a little more than 600% year-on-year. So, of course, when we see an industry that’s exhibiting those transformational rates of growth, then it’s very natural you should expect us to continue reinvesting in content, both exclusive and nonexclusive. As a reminder, some of the exclusive content we already possess includes NBA rights, HBO, Star Wars, James Bond 007, Paramount rights, but we will continue to look for rights just to some of our big competitors will, because the video industry is very fast growing and dynamic industry. And if you look at the video subscriptions opportunity, I think we and a couple of competitors are all growing very quickly as a better regulatory environment and consumers more willing to pay for premium content really creates a business model that didn’t exist in the recent past.

Thank you. Operator, next question please.

Thank you. [Operator Instructions] Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your questions.

Good evening. Thank you for taking my questions. Regarding your performance fee based advertising, as we have seen more inventory from different types of applications, just curious how that would affect two things. Number one is the average ECPM you get from across the board? And then secondly, how that would affect the gross margins of your performance fee based advertising basis? And then finally perhaps just a housekeeping question, any update on the upward trend of your different types of games? That will be great. Thank you.

So, on the advertising ECPM and gross margin, as you would expect, we are placing performance advertising across a wide range of inventories and different inventories have different trends, different formats have different trends. For example, when we put advertising into third-party ad network which we are building out, initially, the ECPM might be a little bit lower, whereas when we put advertising into our Weixin Moments newsfeed, then the ECPM would be materially higher. If we put advertising into a video format, then that would be materially high CPM versus a text format. In terms of the gross margin, the pricing is the less important determinant than to gross margin. The bigger determinant of our performance advertising gross margin is whether the inventory is owned inventory, such as the Weixin Moments or kind of shared inventory where we are the exclusive distributor, such as the Weixin Official Accounts or third-party inventory, such as our ad network and it’s really the nature of the owner of the inventory that determines the gross margin. But in general, the incremental gross margin on our performance advertising business is quite high, because much of the inventory is owned inventory given our substantial unutilized traffic.

In relation to the ARPUs, for MMOG it ranges from 265 to 410 in quarter four of unscheduled games, 85 to 310 and for smartphone games, it ranges within 185 to 190 flat when we see it as the portfolio.

Thank you. Next question please.

Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question.

Hello, Alan. So, if he is not on the line, we move to the next question, please.

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

Good evening. Thank you so much for taking my questions. I have two quick questions. Firstly, I was wondering if you can give us sort of an update maybe an outlook on WeChat Moments advertising. You mentioned the potential to increase your ad load. So, I am wondering sort of what you think about Moments for this year? And then secondly, if you can give us an update on WeBank, any sort of data on sort of micro-loans or sort of user behavior would be very helpful? Thank you.

Okay. In terms of Moment ads, right, I would say it is an ad format and ad platform, which carries significant long-term opportunity, but it’s a very important engagement tool for our users. So, we want to sort of do it slowly and do it right. So, if you look at our performance ad revenue, a big chunk is still actually on our Qzone feet and then there is significant portion, which is on the Official Accounts or the content page in the Official Accounts and then it’s the Moments. So, I think over time as we continue to improve the targeting technology as well as we continue to educate more and more advertisers about sort of how to create the right type of Moments ads in a stylish and in a social way, then we will continue to release more inventories, but that’s not the highest priority for us. The highest priority for us is actually to make sure that our technology is done right and we continue to expand the universe of advertisers who are capable and who are proficient in developing performance ads, especially on Moments. Now as it relates to WeBank, I think WeBank is performing according to plan. They have their flagship product, which is a consumer loan product, which has been signing up a pretty good number of users and it leverages our WeChat and our QQ channel to reach users in a targeted way. It has a white list which allows it to target the creditworthy users and it’s gradually expanding the white list to include more and more users as it continues to refine its credit model. On the funding end, it’s actually using a capital-light model, so that it actually partner with a lot of banks to provide loans in a joint basis. So basically, it’s not a traditional bank. Essentially, it’s a bank cooperation or partnership platform with banking license. And I think that model is actually working out pretty nicely and we continue to gradually increase the number of users that we feed into that system.

Thank you, Martin. Next question, please.

Our next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi, thanks for taking my questions. I wonder if management can share some observations on the user behavior for paid premium content. I wonder the users are mainly from the existing QQ users or data may not be existing kind of paying members on Tencent? And how do we expect the paid subscription growth, is it mainly from kind of cross-selling to different categories as we have more diverse subscription content or is it going to be more spread out into more new users going to subscription of our premium content? And I wonder if you can also comment on, is there any kind of synergy that brings into maybe from paid subscription to some of these services within our service and content ecosystem? Thanks.

So, in terms of the nature of the consumers who are subscribing to our digital content services, it’s relatively nationwide and it’s relatively balanced across different demographics, although like most things Internet, it’s skewed a little bit to men and a little bit to younger users. We do, do some limited upselling of our traditional privileged subscriptions into the content subscriptions, but historically that’s been a small minority of the subscriber growth. The large majority has been activating people calls who previously want paying us and persuading them to pay us, because they love music or they love movies or they love literature. When we look at the growth opportunity going forward, I think that as Martin alluded to in the opening remarks, we feel that’s an increasingly supportive macro environment in terms of government regulations, in terms of the app stores kind of releasing content and in terms of consumers becoming more sophisticated, more willing to pay for content and then finally, in terms of the content suppliers willing to make that content available more widely, but behind a premium service. So, while there is many individual sort of tactics that’s the broad backdrop. Another factor that I think has been particularly impactful in the last 12 or 18 months has been the growth of mobile payment platforms, such as our Weixin Pay. Because when we have surveyed consumers in the past or when movie studios or record labels have surveyed consumers in the past and talk to them about why they are not paying for premium content, then typically the answer was not that they felt RMB10 or RMB20 per month, which is the rate we charge, is too expensive. The answer was that it was inconvenient to pay. If they wanted to watch a movie now, if they wanted to listen to a Taylor Swift record now, they didn’t want have to go to a 7-11 and buy a prepaid card in order to activate that experience. But now that they have a smartphone in their hand and that smartphone is bound to their bank accounts and they can pay instantaneously through Weixin Pay, then it makes what was previously inconvenient, inaccessible service much more convenient and accessible. So, we think those are all the factors supporting the growth and those should also continue to support the growth going forward. Of course, we will continue to work with content suppliers. And to some extent, we are also – our growth is also a function of how our competitors behave a little bit. If our competitors adopt a forward-looking mentality and try to nudge a premium content consumption as well, then that’s good for them, but it’s also good for us and for the overall industry.

Thank you. Operator, next question please.

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

Hello, Natalie. Okay, operator, we move to the next question please.

Alright. Your next question will come from the line of Erica Poon from UBS. Please ask your questions.

Good morning, management. This is Ming Xu asking on behalf of Erica. So, I have two questions. The first question is regarding WeChat. So firstly, could you share with us maybe the split between – in terms of Moment ads, could you share with us the split between big advertisers and the long-tail advertisers in terms of number and also in terms of revenue? We also noticed recently that you have lowered the minimum placing requirement for each app. So, I am wondering what’s the update in the past 1 month and also what’s your outlook for the rest of 2016? Secondly, could you share with us some color on the application account and also corporate WeChat? And then I have a follow-up on games.

I think Ming that will be the two questions that we are going to take from you. Thank you.

In terms of the Moments advertising, at this point it’s really the bigger advertisers and that’s where we are focused at because it’s initially appealing for the bigger advertisers. As far as the outlook is concerned, I would refer you back to Martin’s earlier comments, that we think that it has a great long-term potential as evidenced by the success of global peers as evidenced by the advertising reaction to our initial batch of ads, but we will manage the growth carefully. In terms of...

Yes. In terms of app, well you actually asked two questions which are not really large yet, so very forward-looking questions. I think the idea of application account is really helping the Official Accounts owners to provide more functionality and more custom-made functionality for their Official Accounts. So for the traditional Official Accounts, it’s a menu-based and it’s conversation-based. And we saw that with a lot of different types of merchants and organizations using the Official Accounts, some of them actually sort of want to upgrade the experience and provide a light app for their users through our platform. So, that’s why we are now designing the application account to cater to these kinds of needs. In terms of corporate IM, enterprise IM, we clearly see that more and more people are using WeChat for business purpose. And there is sort of a lot of mixing between sort of new personal usage and enterprise usage. And we also saw that enterprises now want to have a more unified experience for their employees. So that’s the idea behind our enterprise IM and both of the products are actually in the making right now. So I think we can provide you with more update when we actually launch the product.

Okay. Thank you. Next question please.

Your next question comes from the line of John Choi from Daiwa Securities. Please ask your question.

Thank you for taking my question. I have actually a question on mobile games, could management give more color particularly in the user behavior given that you guys have been always – already been doing games for 3 years. And now, we have started to see more IP from your PC – launching on the mobile side and particularly if we look at the developed markets, seems like the mobile game market has been maturing, so I think for this year, we should continue to see strong growth, but I mean how long do you think mobile game will continue to deliver strong growth momentum? Thank you.

Well, I think that’s mobile games individually and mobile games in aggregate. So mobile games individually, titles move in and out of favor and that can cause volatility for individual products and individual companies. The mobile game industry in aggregate, we think is on a strong secular growth trend. And if we look at how user behavior has evolved in the U.S. and in Europe, in Japan, there was relatively rapid move from casual games into mid-hard core games with long life and greater monetization. In China, it’s been a more winding path and I think that that 3 years ago most of the games in the market were very casual games with correspondingly very low ARPU. Then we started to see a handful or mid-core games enter the market with much higher ARPU, but typically shorter life. Early 2015, we began to see some role-playing games come into the market, which appear to exhibit descent ARPU and a decent longevity, but relatively small absolute number of users. And then I think as the years moved on, we have tried to bring games to the market that are mid-core in nature, have respectable ARPU, have – we hope some degree of longevity, but also have actually fairly sizable user base. So as the game markets move through those, then it’s expanded with each new generation iteration. And looking forward, while we have already pioneered some genres, such as mobile shooting games, mobile battle arena games, there are many, many more genres that are popular on the PC, but not yet popular on mobile and many genres that are popular in the West or in Japan or Korea, but not yet popular in China that we think will become popular in time and we hope to support the growth of the overall mobile game industry.

Thank you. Operator, in the interest of time we will take the last two question please.

Your next question comes from the line of Thomas Chong from Citigroup. Please ask your question.

Hi. Thanks management for taking my questions. I have two questions. The first question is that in the press release, you talk about the cloud computing business delivered over 100% year-on-year revenue growth, I think this is one of a few times that you talk about the monetization for the cloud computing business, can management talk about your view on that front and the trend for the next couple of years. And secondly, the question is about payment, can management comment about how Apple Pay will affect the competitive landscape in China? Thanks.

Yes. In terms of cloud business, we believe the cloud business is very a strategic business for us to grow over the long run. The reason is because it’s part of our overall connection and ecosystem strategy. As we continued to build our platform, our social ad platform, we get into a lot of relationship with a lot of companies, entrepreneurial companies, large and small companies providing services. Our app store, for example also host a lot of these companies. So as a result, we actually see a lot of these companies as sources for our cloud business. And our cloud business is a gateway for us to leverage our very large cloud computing – in-house cloud computing infrastructure. So we have a sort of economies of scale just based on our existing in-house business. And at the same time, we have developed, over the years many, many technologies, such as acceleration strategy – technologies, such as security, such as bandwidth saving, such as caching technologies, which we can actually share with a lot of companies in our ecosystem. So as a result, we have been building our cloud business. We started off from the game vertical and in the course of last year, we have expanded to cover many other industries. And we have seen strong growth fraction in this business and we will continue to invest in this business as part of our overall ecosystem strategy. Now in terms of the payment, I think sort of we do not want to sort of be very too much focused on what other companies are doing. What we are focused on is actually sort of a building our own payment platform because it’s actually very tied with our own ecosystem. And so far, we have been seeing strong traction in terms of both number of users adopting our payment solution, in terms of merchant adopting our payment solution as well as in terms of user activity.

Thank you. Operator, we will take the last question please.

Thank you. The last question comes from the line of Ming Zhao from 86Research. Please ask your question.

Thank you. Two questions, first question on the mobile gaming, so can you talk about the mobile games in the pipeline, will you slot [ph] those games evenly for the balance of this year and next year or do you expect a sharp increase in the supply of such games, especially the mobile MMO games. And then you wan to launch them quickly to gain market share, that’s question number one. Question number two, saw margin, so correct me if I am wrong, from Q4 performance and the fact that you are charging users fees for withdrawing money from their wallet, management seems emphasizing profit margins a bit more than the past, if not what are the areas of heavy expenses this year? Thank you.

I think on the mobile games, it’s never been Tencent’s policy to rush a lot of product to market in order to grab market share. We don’t think that, that’s how the mobile game industry works at this point in time. So, we have what we hope is a very good pipeline of mobile game titles and we will release them at a measured pace through the year and we hope give each of the new mobile games time to find its speed and grow its audience. And if we do that, then our market share will take care of itself. And more importantly, the overall market will take care of itself. I think when we have launched successful vast arena games or shooter games we haven’t been pulling users or revenue away from competitors. We have been creating a demand, creating an audience and creating revenue that wouldn’t exist right, not for what we are doing. So, we are not particularly focused on market share grab and we are setting up frontloading or tank crushing a huge quantity of mobile games to market in a short period of time.

Yes, in terms of margin, I think sort of I will repeat what James said right, we are not really focused on margins. The reason is because our margin is actually a collection of different businesses with very different nature, right? So, it’s very difficult to sort of just draw an implication from a particular number, which is sort of is a composite of many, many different elements. So, addressing a little bit to your question, the bank handling fee was actually accelerating throughout the past sort of, I will say, 6 months and the highest number reached was actually sort of January, so that was the number and it becomes very significant and hence we have to put in some measures to containment. Now, in terms of the margin itself, I would say, the margin – the bigger impact on the margin sort of frankly in the course of last year and fourth quarter was mainly because of the cost that we incurred in sharing – in acquiring content from our partners, right? For example games, we actually sort of have a lot of partners and when should we operate their games and publish their games and then we have a revenue share. And for example, in terms of video and music content, we actually sort of share – we pay licensing fee to our content partners and as a result incur these costs. And these sharing to the partners actually sort of reduce the margin on our business. But I think it’s actually a healthy increase right, because it means that we are actually becoming the gateway of revenue for a lot of our partners and that’s sort of a healthy relationship. And over time, we can actually leverage the creativity and value related of these partners and to create more tied in, more attraction for our business. So, I think that’s actually sort of a healthy decrease over time. So, I think it’s hard to just look at that number. I think we actually have to look at different business lines and look at sort of how the margin trends. Then it will be much more informative insight.

Okay. Thank you very much for joining us this evening. We are closing the call now. If you wish to check our press release and other financial information, please visit our company website at www.tencent.com/ir. The replay of this webcast will also be available soon. Thank you and see you next quarter.

Thank you. That does conclude our conference for today. Thank you for participating in Tencent Holdings Limited 2015 fourth quarter and annual results announcement conference call. You may disconnect now.