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

Dick Wei - Credit Suisse Eddie Leung - Merrill Lynch Wendy Huang - Macquarie Capital Securities Erica Poon Werkun - UBS Thomas Chong - Citigroup Natalie Wu - CICC John Choi - Daiwa Vivian Hao - JP Morgan Richard Kramer - Arete Research

Thank you for standing by and welcome to Tencent Holdings Limited 2016 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, operator. Good evening. Welcome to our first quarter 2016 results conference call. 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 review value added services, James will speak to you on advertising and John will discuss the financials before we take your questions. I will now turn the call over to Pony Ma.

Thank you, Catherine. Good evening, everyone. Thank you for joining us. During the first quarter of 2016, our mobile social communication platform reaching QQ further dividend penetration in China and connector the users tool and expanding portfolio of online and offline services in our ecosystem. We further expand out digital entertainment business especially smartphone games and strengthening the foundation of our online advertising business. Financially to elaborate a solid set up we saw for the first quarter, total revenue was RMB32 billion, up 43% year-on-year and 5% quarter-on-quarter. Non-GAAP operating profit was RMB13.5 billion up 43% year-on-year and 17% quarter-on-quarter. Non-GAAP net profit to shareholders was RMB10 billion, up 39% year-on-year and 12% quarter-on-quarter. And John will provide more details in the financial section. Moving on the online platforms, total MAU for QQ was 877 million up 5% year-on-year within which some our devices, MAU was 658 million, up 9% year-on-year combined MAU of Weixin and WeChat increased 39% year-on-year to 762 million. For our social networks, Qzone from our devices MAU was 588 million, up 4% year-on-year. In PC games, we maintained market leadership and continue to grow paying users via new content and items in Qzones. In smartphone games, we broaden our portfolio and gained leadership in multiple new zones. We are planning several eSports tournament during the year to deepen in, to deepen also engagement in activities. Our media platforms which include the news and video delivered a healthy growth in mobile usages. In particular, our exclusive partnership with NBA enables us significantly expand NBA viewership nationwide. In mobile utilities, we exposed our mobile security capabilities to more third parties and widening our lead. Page views from our mobile browser increased significantly after we introduced newsfeed in homepage. In our app store, YingYongBao gained incremental market share during the quarter. With that I’ll pass to Martin to speak to business review.

Thank you, Pony. And good morning and good evening. In the first quarter of 2016, our total revenue grew 43% year-on-year. VAS represented 78% of the total revenue of which online games contributed 53% and social networks contributed 25%. Online advertising was 15% of total revenue. We moved cloud services revenue from social networks to others this quarter and the others segments represented about 7% of total revenue. Let’s take a closer look at value added services. Segment revenue was RMB25 billion in the first quarter, up 34% year-on-year and 8% quarter-on-quarter. Social networks revenue was RMB7.9 billion, up 48% year-on-year and 11% quarter-on-quarter. Strong performance of monthly subscriptions as well as increased revenue from game related item sales drove segment revenue growth. Monthly subscriptions of membership in particular music and video content grew, boosting total subscription accounts by 33% year-on-year to 108 million. Online games revenue was RMB17.1 billion, up 28% year-on-year and 7% quarter-on-quarter. For PC games, user activities benefited from positive seasonality during the Chinese New Year. Monetization increased year-on-year and quarter-on-quarter as we further enhanced our operational capabilities. For smartphone games, new titles launched in the last six month, drove both year-on-year and sequential revenue growth. In social networks for QQ, we further enhanced community stickiness via product upgrades and new group functions. In Interest Tribe, we launched a new timeline homepage that served a selection of content feeds based on users’ interest graph. In group chat, we are increasingly using video to make group interactions more likely. We added peer-to-peer video messaging. We also enabled users to watch professional video together with each other. We also relived new virtual gifts which are popular among young users. For Weixin, we launched the enterprise version of Weixin app to server mobile communication need at work. The new Enterprise Weixin app is also synergistic with existing enterprise accounts that are running in Weixin. We’ll continuously enrich this new application to facilitate mobile office management thereby increasing efficiency for enterprise users. A point of Weixin payment, we began in March to collect a cash withdrawal fee off 0.1% of transaction value when users move money out through their bank accounts. The cash withdrawal fee has helped us to contain losses. And in terms of user activities, it has a little impact on user activities, as a result of payment platform continued to grow healthily since the policy change. Now looking at games, on PC client games, the combined average concurrent user account for advance casual games were 7.9 million, down slightly by 4% year-on-year. In the quarter, CrossFire one of our biggest title hit a new record PCU at 6 million even after the launch of its mobile version last December. Combined ACU for MMOGs were stable at 1.5 million. During the quarter, we released expansion pads new items and seasonal operating activities during the Chinese New Year driving engagement as well as payment paying user growth. We are also increasingly leveraging east boards to generate excitement among gamers. During the quarter, we kicked off a new tournament season for our lead titles in the MOBA, shooter, sports and music genres. User metrics indicate a strong enthusiasm among players and audiences both in-game as well as in offline arenas. For smartphone games, revenue reached RMB 8.2 billion up 86%year-on-year, sequential grew 16%. And this is mainly driven by strong performance of our mobile shooter and actions games. We continue to dominate China’s iOS top grossing charge with six out of top ten games, within top 20 if we operate ten games with three serving a lifespan of more than two years. We believe our market positioned on Android is even stronger. We’re currently enriching our IP catalog with in-house and license titles from China and globally. In the first quarter, we operated 84 games in total. New casual games include a 3-D running game as well as broad games such as Bridge and Chess. The success of Naruto mobile also illustrates the power of combing approval IP with Tencent’s development as well as operational capabilities. In order to promote mobile eSports, we are levering multiple Tencent properties such as QQ, Weixin Video and News app. In the final tournament of QQ game competition, nearly two million players participate in the matches and over 30 million users watch this event on this platform. Now, I’ll invite James to take about our online advertising business.

Thank you, Martin. Our online advertising segment revenue was RMB4.7 billion or 73% year-on-year and down 18% quarter-on-quarter. Mobile contributed 80% of our total ad revenue. Within which our brand advertising revenue was RMB2.2 billion, up 56% year-on-year and down 23% quarter-on-quarter. Year-on-year, the increased mobile impressions and ad price across our media platforms delivered above industry revenue growth rates. However, revenue declined sequentially due to weak seasonality in the first quarter and macro conditions. Our performance advertising revenue was RMB2.5 billion, up 90% year-on-year and down 13% quarter-on-quarter. Since we began testing Weixin Moments advertisements one year ago, we’ve employed user feedback got us to refine our targeting capabilities and deliver more relevant advertising to users. These internal ad opportunities more inventory in Mobile Qzone and Weixin Moments contributing to the rapid year-on-year growth. Sequentially, our performance advertising revenue declined primarily due to the weak season of ecommerce in the first quarter. Looking more detail on media and social advertising inventories, in News, mobile traffic grew as we adopted enhanced targeting based on users’ interest. In the first quarter, 80% of our news advertising revenues are from mobile. In video, we saw rapid growth in both user visits and mobile video views due to an expanded catalog in enhanced curation capabilities. Benefitting from our exclusive partnership, NBA games attracts to large number of fans to our platform driving up unique viewers significantly. The NBA fan base is particularly for big advertisers such as [indiscernible] and food and beverage companies. In social, we are actually building the business to scale. For Qzone, we have expanded to better serve brand advertisers by campaign solutions that facilities brand story telling. The Weixin Official Accounts, where testing product listing ads they deep link directly into advertisers at product pages. The initial feedback from ecommerce advertisers indicates lift and ad conversion as a result. And for Weixin Moments, we are bring long-tail advertisers on board by using traffic generated from tier three and four cities with lower to minimum ad budgets and then to educate them to use our self-service bidding platform. We constantly monitor to use a feedback and balanced inventory growth with our performance. And I’ll now invite John to walk through the financials.

Hello, everyone. For the first quarter of 2016, our total revenue was RMB32 billion, up 43% year-on-year or 5% quarter-on-quarter. Gross profit was RMB18.6 billion, up 38% year-on-year or 5% quarter-on-quarter. Share of losses of associates and joint venture was RMB1.1 billion during the quarter. On non-GAAP basis, Share of losses of associates and joint venture was up approximately RMB340 million. Income tax expenses were at RMB2.6 billion, up 50% year-on-year or 28% quarter-on-quarter. The effective tax rate for the quarter was 21.6%. Net profit attributable to shareholders was RMB9.2 billion, up 33% year-on-year or 28% quarter-on-quarter. After adjustments to non-GAAP, operating profit for the quarter was RMB17.5 billion, up 43% year-on-year or 17% quarter-on-quarter. Net profit attributable to shareholders was RMB10 billion, up 39% year-on-year, or up 12% quarter-on-quarter. Operating margin was 42%, stable year-on-year and up 4 percentage points quarter-on-quarter. Net margin was 32%, down 1 percentage points year-on-year or 2 percentage points quarter-on-quarter. Let’s turn to segment gross margin for the fourth quarter. Gross margin for VAS was 66% broadly stable year-on-year or up 2 percentage points quarter-on-quarter. Sequential increase reflected to increase in revenue proportion of self-products including smartphone [ph] games. Gross margin for online advertising was 44%, up 5 percentage points year-on-year or down 7 percentage points quarter-on-quarter. This sequential dip was mainly due to weakest analysis. Moving on to operating expenses, selling and marketing expenses was RMB2 billion, up 53% year-on-year or down 33% quarter-on-quarter. The year-on-year increase primarily reflected higher marketing spending on products and platforms such as payment services and online media as well as greater staff cost. The sequential decline mainly reflected the seasonal reduction in advertising and promotional activities. G&A expense was RMB4.4 billion, up 19% year-on-year, or down 8% quarter-on-quarter of which R&D expense was RMB2.3 billion, up 15% year-on-year, or down 6% quarter-on-quarter. The year-on-year increase was due to R&D expense is of course where the sequential decline was mainly driven by lower R&D expense, consultancy fees and staff costs. As a percentage of quarterly revenue, selling and marketing expense was 6% and G&A was 14%. R&D represented 7% of quarterly revenue. Share based compensation was approximately 2%. We had approximately 31,000 employees as at quarter-end. Looking at margin ratios for the first quarter, gross margin was 58.1%, it was down 1.9 percentage points year-on-year and broadly stable quarter-on-quarter. The year-on-year decrease was mainly due to the increase of proportion of other segment revenue with lower margins. Non-GAAP operating margin was 42.1% flat year-on-year or up 4.2 percentage points quarter-on-quarter. This sequential increase was mainly due to lower selling and marketing expense and general and administrative expenses of proportion of total revenues. Non-GAAP net margin was 31.7%, it was down 0.9 percentage point year-on-year and up 2.1 percentage points quarter-on-quarter. The year-on-year decline was mainly due to the increase in the share of resources of facilities and joint venture. The sequential increase was due to higher operating margins partially offset by increased income tax expenses. For the first quarter, total CapEx was RMB4.1 billion, up 208% year-on-year or 118% quarter-on-quarter. Operating CapEx was RMB1.3 billion, up 105% year-on-year and 4% quarter-on-quarter. As a percentage of revenue, it was consistent with last quarter at 4%. Non-operating CapEx was RMB2.8 billion, up 308% year-on-year or 371% quarter-on-quarter. The significant year-on-year and sequential increase was mainly due to addition of [indiscernible]. Free cash flow was RMB13.9 billion, up 67% year-on-year or down 14% quarter-on-quarter. The year-on-year increase reflected to higher operating cash flow whereas the sequential decline was reflected to lower operating cash flow as we paid bonuses in the first quarter and higher capital expenditure as we had more CIP and new scribe [ph] during the quarter. Net cash position as at quarter end was RMB27.4 billion, up 8% year-on-year or 44% quarter-on-quarter. The sequential increase in net cash was primarily driven by free cash generation, partially offset by payments for MMO initiatives and license contract. Share market value of our listed associates and available for sell financial assets was approximately RMB82 billion as at quarter end. This concludes our presentation. Thank you.

Thank you, John. Operator, shall we take the first question please. And we’ll like to invite one question from each analyst at a time. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi, good evening. Thanks for taking my questions. My question is on Tencent’s plan on some new initiatives, for example number one is on personal life’s news, I think some of the other sites have news site has more personalization on the news. I wonder any plans about for Tencent particularly beyond our Tencent quite above any plans would change in terms of the WeChat Moments, ways represented news or the news feed wide and just purely time based would be more interest base? And so personalize news is one area and other second area maybe the on life video market, have they had drawn some loyalty attention and I wonder how this management see about opportunities as well as the plans for that going forward to us? Thank you.

In terms of personalized news, we feel that sort of - it’s definitely sort of a trend that’s - that consumer is actually clearly want. And the same time sort of from a technology perspective, especially on mobile right, you know it’s actually easer to identify the person and then sort of you provide personalized news. We believe when people read news, there is a part people’s needs which actually wants to read the hottest news. There is another part which sort of there is interest, there is an interest element and hence they require a personalization. And as a result, if you look at the range of initiative that we’re doing to these two needs, you know obviously sort of Tencent News is one that sort of present the most authoritative and the hottest news to the users. But on the sort of personalized front, I think there are a number of values we can do it. One is actually as you said Tencent Qiye Wexin which is our everyday news express app which we’ve launched which sort of you know primarily present news as well as you know additional information news related information to the users through a personalized timeline mechanism. In addition to that we - even within Tencent News right now, we are actually trying to incorporate some elements of personalization through the consumers so that in addition to the most updated news to everybody is using, our users can also see some personalized updated news for them. And thirdly, within the official accounts in Weixin, you can consider as another of personalization but sort of you know this is a personalization which consumers clearly tells us what account they want to follow. And then sort of you know people see these news push to them. Now on moments, I think we already capture some of the personalization through social sharing. You know I think that’s already sort of quite enough, we do not want to turn the moments into sort of primarily a news reading vehicle. So that’s why I think we are not going to do much of that within moments, but rather sort of you know focus on pushing on YingYongBao as well as personalization within Tencent News and continue to pushing of our official account. You know in terms of live video, we have - we consider life video from two elements, one is live video is actually a media format. It’s a capability that a lot of our media properties would actually sort of need to incorporate. So that’s why within a number of different of our properties video platform even sort of you know within our music platform potentially, we could support life video functionality. Yeah, on the other hand right now, we saw - and then a number of our investing companies, for example Qihoo they are actually sort of a life video platform which focuses on game related life video streaming, right. So that’s also sort of capability that’s sort of you know tied in with that kind of business model. Now the other aspect of live video is a way for people to perform and then that’s a business model and it looks like sort of you know it’s actually generating quite a bit of revenue from four different platforms. On that one, we felt this sort of you know less of a network you set that’s - it’s essentially a group of content that’s curated for user. So it’s to pay for and there is overtime we think sort of news less network if - that stickiness and that’s a revenue stream that I don’t will chase with what is - with lot of focus.

Got it, thanks Martin.

Thank you. Our next question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead.

Hi, good evening. Thank you for taking my question. I wonder if you could elaborate a bit more on the macro impact on your advertising basis, could you say us on some of your top advertiser industries and any strength and weakness that you have observed in them which would - which you can with this conclusion of some macro impact? Thank you.

Eddie, I think so it’s really a general feeling right now we see and there is sort of you know some weakness in terms of the propensity expand within among sort of you know the top advertisers and across the board and you know particularly stronger with factors which we quite bigger take your item sale. So I think that’s sort of a general sense. In the past for example, it takes two meetings to sort of nail down a certain amount of contract. Now it takes longer time and the contracts, average contract size sort of you know is typically smaller and sort of you know advertisers are keeping more of the budge for later of the year and to this season clear picture around the macro economics. So these are sort of you know that the general feeling that we are getting from the front line sales people.

Martin, I have a follow-up question. Just brought this, do you feel the impact is more on the brand advertising side, on the performance advertising side? Thanks.

I think for us right, you know if you look at our current business portfolio, it’s sort of you know more on the branded side. I think sort of you know on the performance side you know we are still in the process of ramping our business. That’s one factor. The other one is you know generally I think sort of you know this is small to medium enterprises sort of you know less, that smaller ticket are less affected by this.

Very helpful, thanks.

Thank you. Next question please.

Thank you. Our next question comes from the line of Chi Tsang from HSBC. Please go ahead.

Hi, good evening. Thank you so much for taking my question. I wanted to ask you a little bit about Weixin Moments, in particular I was wondering if you can discuss sort of you ad load is currently in how they make progress over the next sort of year or two? And then secondly, I also wanted to ask you about Enterprise Weixin and how that business model might evolve over the next few years? Thank you so much.

Yeah, for Weixin Moments, I think the ad loads would gradually increase. But I want to stress the point of gradually and alongside with gradual increase you know there is a lot of work for us to do in order to accompany that right, to make sure that the overall user experience are not impacted. And a lot of is related to improving our targeted ad platform capability, so that we can actually target our advertising to consumers with that kind of need. We need to sign up a range of high quality advertiser also sort of you now couple that with a lot of customer education, so that the quality of the advertising is actually high. We need to sort of you know train up a lot of intermediary so that they can act as our helper in and forcing a healthy ecosystem around advertisers. And there is a lot of work that we need to do with respect to app format. So that you know the app formats naturally embedded into the user experience of that you know it’s attractive on one hand but sort of doesn’t affect the user experience on the other hand. We need to sort of you know putting a lot of effort in creating our self-serving - development of self-serving at buying system, so that you know you can actually help more advertisers come in, right. So there is a lot of fundamental work to be done and releasing more inventories actually easy part but what we need to do is actually making sure that the other - all the other capabilities are increased so that when we release inventories, it’s actually conducive to user experience rather than sort of you know impacting user experience. In terms of Enterprise Weixin, right, you know I think you know it’s too early to talk our business model, right. Right now what we focus on is actually launching a product, understanding what the enterprise users’ needs are and trying to keep improving our product, so that we can serve the enterprise users’ needs. So you know that’s for the moment out focus.

Okay, thank you. Operator, next question please.

Thank you. Our next question comes from the line of Wendy Huang from Macquarie. Please go ahead.

Thank you. On the advertising front, you also coded the weak seasonality in the e-commerce as a reason for the advertising decline. I just wonder what your advertising revenue contribution from JD with very significant to your advertising revenue. And also you mentioned that you already wrote out the self-beating system in the lower tier cities for the Weixin Moments. Just want to clarify the - in the longer terms the Weixin Moments as platform should it be more for the brand ads or the SME advertisement? Last I want to clarify on the 260 million other revenues that you recorded this quarter, is it enterprise Weixin related or is it cloud related or is it payment related? Thank you.

Okay, well in the e-commerce comment, it’s more sort of you know related to quarter-on-quarter comparison right, because sort of you know at the four quarter of every year usually sort of you know it’s a big season for e-commerce industry. So it’s more of that reference. Now in terms of JD, I would say it’s a meaningful contribution but it’s not sort of quote unquote overly - it’s not overall sort of heavy proportion of our performance in ads. Now in terms of the second tire - third tier and 42 cities and we have launched that you know that functionality as testing. You know so far I think the testing result is actually encouraging. We are cautious in doing this because we want to make sure that we continue to enforce the quality of the advertisers. And overtime, we’ll see this platform should be sort of both serving the needs for branding as well as serving the needs for small and medium enterprises in terms of target and their user. So the more targeting capability that we add the more sort of you know ad format that we can actually make it you know consistent with user experience than sort of it has more scalability both from the branded sort of perspective as well as from a performance perspective. Now in terms of others revenue, right, you know I would say the biggest chunk is actually related to payment and in that regards, one of them is actually related to the revenue that we see from merchants, third party merchants when we actually sort of you know server as their payment gateway and then sort of new users use payment in the merchants consumption pathway. And second is slightly revenue from - it’s actually one month revenue from cash with fee from the consumers. And then the other big question is really cloud service.

Thank you so much. Next question please.

Thank you. Our next question comes from the line of Erica Poon Werkun from UBS. Please go ahead.

Hi, thank you. We note that you’ve launched a number of the mid-high core in mobile games titles across different genres. I was just wondering if you can share are there any particular genres that Tencent has found a stronger niche and where you are likely to spend more focus on. Thank you.

I think when we look at the mobile game industry in general, there is about a dozen genres which arrives enlarge what established today or we see is becoming very substantial in the next couple of years based on mobile trends and based on PC gaming behavior in China. And you know several of these big genres that already opted around PC in China. We see some conversions of game pay mechanics, game of behavior that’s between PC and mobile as the mobile game already become more sophisticated. I think if you look at those big genres that has some such as sound based road side games what other companies are obviously very successful, we’ll seek to build market share. But and there is other categories such as shooting games, that arena games, running games, board and card games. We’re not on the - we are very successful but you can could you see that we are sort of created those game genres in China or at least made those game genres five times bigger than they would otherwise be. We hadn’t released the flagship games in those genres.

Thanks James.

Thank you. Operator, next question.

Sure. Our next question comes from the line of Thomas Chong from Citigroup. Please go ahead.

Hi, thanks for taking my questions. I have two questions. The first question is about the ARPU for MMO at launch schedule and smartphone games if management can provide some more color? And my second question is about online video. Can management comment about the online video, how competitive landscape for this year compared to last year? Thanks.

For the ARPU for MMOG, it’s within RMB310 to RMB450 for the quarter, and for advance casual games, RMB85 to RMB330, and for smartphone games you know as we really as a portfolio is between RMB150 RMB260 for the quarter.

I think for the online video competitive landscape, the short answer is it would be extremely competitive and slightly more competitive this year than last year as you can see this from our release. The mergers and acquisitions have taken place in the emergency, newer company, TV in the space. Together a little bit more granular, in general those companies that’s fit aggressively for top content during 2015 such as IT and Tencent video platform, games, substantial user and revenue share which is inducing everyone to fit aggressively for top tier content moving into 2016. Some of the areas by the bidding would be more intense would include the drama serials, particularly drama serials that attract 15 to 30 year old female audience, and also content that has the ability to drive subscription as well as advertising revenue. It would be areas where the competitive intensity is especially high.

Thanks.

Yeah. Next question operator, please.

Thank you. Next question comes from the line of Natalie Wu from CICC. Please go ahead.

Hi, good evening management. Thanks for taking my question. I have question regarding your advertising business. It seems to be a little bit lower in terms of sequential growth. So just wondering if there is any revenue associated with that? And could the management give us some color on the contribution of e-commerce advertiser contribution on the performance-based ad in the first quarter?

So in terms of the second question, e-commerce would be the largest advertising category for our performance advertising business, so it would be healthy double-digit chunk but a minority of the total. In terms of the quarter-on-quarter trends, we have pulled some of them out. The first one is the usual negative seasonality for the brand advertising business, which I think in some previous years, we have sort of grown straight through that because of the emergence of new platforms like online video whereas this year we had more sort of industry normal impact for negative seasonality in Q1 on the brand advertising side. Then secondly, on the performance advertising side, on every year the fourth quarter is a peak season for e-commerce activity, but this year fourth quarter 2015 there was the 12/12 event as well as the 11/11 event, more e-commerce companies participated more aggressively than previous years, so to some extent the hangover from Q4 to Q1 was more pronounced this year than previous years. And thirdly, this year during the - again the performance advertising, during the Chinese New Year, we had a number of advertisers who both combined packages of advertising together with red envelopes and the accounting for those had the effect of moderately reducing our performance advertising revenue. But in general, I would say that, without sort of over focusing on the whys and wherefores of Q4 to Q1 trends, our advertising business is becoming quite large by China internet industry standards, and so while we still - it will grow faster overtime, and while we sit and watch outgrow the industry over time, the percentage growth rates may slowdown to some of our advertising products such as our online video business.

So to be more specific, I think there need to be some kind of resell in terms of the year-on-year growth rates that people expect for our advertising business. I would say sort of you know last year was a breakout year in the sense that mobile video business actually grew a lot. It was the first year in which we monetize our mobile news app in a significant way. And it’s also sort of the year in which we really flex our muscle around performance ads as I was launching off the Moments ads in the second quarter of last year. So it’s a congruence of a lot of factors, which still sort of very fast year-on-year growth. Now as we look into the future, the branded ads is already sort of approaching pretty large size, which means that it will be more closer to the industry growth, and of course we will try to look to exceed that. And in terms of performance ads, we look at it as a long term business. So we will be deliberately building it over the longer run, which means that there will not be sort of very fast release of inventories. We want to make sure that everything is actually done right alongside with the gradual release of the inventories.

Great, very helpful. Actually to that I have a very quick up if I may. I heard that Qzone actually lifted the ad note a quarter ago, so I am sure we would be expecting a similar level of improvement of advertising revenue related with Qzone, and will there be a similar plan on Weixin Moments as well this year?

Well answering - as we said, we will gradually release more inventories, right but if we are not doing well in terms of the five different initiatives that we are doing in terms of ad technology and sort of advertise education and things like that, then sort of any release of inventory will have a margin or least lower return in terms of the additional revenue, right. So and then sort of you will have bigger negative impact on the users. So that’s why we need to make sure that we continue to push forward on our own capabilities, and that should precede the release of the inventories, or that should be done alongside with those inventories.

Thank you. Operator, next question please. And in the interest of time we shall take the last three questions please.

Thank you. Next question comes from the line John Choi from Daiwa. Please go ahead.

Hi, thanks for taking my questions. My question is on the mobile games right now. It seems like you guys have been pretty aggressive, you are pushing the eSports culture. So if the management could give more color how this is impacting the ARPU, the game license in lifecycle and how that’s all impacting the monetization rate? And secondly, just want to quickly have more detail on the subscription, it’s 108 million, any more details apart from music and online video? Thank you.

So in terms of the eSports events around games, you asked whether it should impact ARPU or monetization rate or game longevity. I would say that we see it primarily affecting game longevity and user retention. There may or may not be ARPU monetization benefits over time, with League of Legends, normally when a team wins the global championships, then players are like to buy similar skins to what the winning team has used, but that’s a sort of happy by-products, it’s not the primary reason across to be in the eSports business. The primary reason is that we see huge pent-up user interest in eSports both in competing but also watching other people compete, and we believe that by tapping into this cultural phenomenon, A, we can increase our mind share with game players, and B, we can also deepen the engagement with the games and extend the longevity of the games. So that’s really the rational I think the whole reason for being involved in eSports. You know along with the gaming company and games find in eSports, it can be great. Your question around the subscriptions, I didn’t catch you asked about X million subscriptions in the growth in music and video?

Yeah, just wondering you guys had 108 million, so any churn on the ARPUs particularly music and online video that will be helpful. Thank you.

Yeah, so in general, if you look at our privileged subscriptions, which represents the majority of our subscriptions such as QQ Membership and VIP, and the blended ARPU is drifting higher over time, because there is an increase in propensity to take the RMB20 Super VIP package rather than a RMB10 VIP package. But our focus is more on adding more value to the packages and maximizing the number of privileged subscribers, with the ARPU increase, it’s again a happy by-product. If you look at the digital content subscriptions, then the video, the price point has been RMB20 a month since we launched, which at the time is a premium to the industry, but now the industry is converged around RMB20 a month as well. For music, the initial price point was RMB10, but now there is an increase in number of people taking RMB12 or RMB15 packages, enable them to download several 100 songs on to their phone as opposed to just streaming. So there is also a gradual ARPU drift in the music product. But the bigger focus for us is really on getting more consumers to subscribe and then if they are not they pay falling naturally all the time.

Okay, thank you. Next question, please.

Thank you. Our next question comes from the line of Vivian Hao from JP Morgan. Please go ahead.

Hi, thank you for taking my question. My question is still around your pay-for-performance ads. Apart from the seasonality in Q1, we saw that probably for JD, the second quarter guidance is still soft, relatively soft. Just wondering how should we expect the P4P revenue to trend in Q2? Also on the new In-Feed auto-play video ads to be launched on the Moments, can we get an update as well? Thank you?

Yeah, in terms of pay-for-performance, as I said, JD has an important partner actually contributes that ecosystem, right they contribute a meaningful portion of our total performance ads but it’s not overly heavyweight, right. So that should be put into perspective. Now as a result, we talked about our performance ads business as a long term business, so that’s why I would like people to sort of reset some of the expectations, overly high expectations for us to step on the pedal and keep on releasing inventories. I think sort of we would like to sort of do it on a gradual basis. It’s the third time I talked about it. So I think that will be a much important riding factor when you look at our performance ads in the next few quarters. What was the next question?

About the In-Feed auto-play video ads.

I think that one is still being tested right now. It’s not sort of fully operational or so with what we will see how it is performing then we may report once it’s really sort of live.

Do we have a timeline?

It will be released when it’s ready.

Okay. Thank you. Operator, shall we take our last question please.

Certainly, our last question comes from the line of Richard Kramer from Arete Research. Please go ahead.

Thank you very much. I’m just wondering two things briefly. One is can you update us on some data on the user based attached rates, TPV et cetera of Weixin Pay. Will the 0.1% withdrawal fee from March grow to be something that’s material to Tencent revenues by the end of 2016? And I guess the other thing it seems to be a question among some investors, with the recent capital raising. Can you talk through your acquisition strategy and the need for raising another three billion to four billion of capital? And then what areas do you think we should expect Tencent to look to deploy this capital? With the cash flow generation you are seeing right now, what prompted this move given that obviously the business is profitable and quite cash generative? Thanks very much.

Yeah, in terms of payment business, I think with the general direction as we have provided is that platform continued to grow healthily, and in terms of the total number of transactions, in terms of number of users, active users sort of it is growing healthily. I think in terms of the revenue, right the revenue from both the merchants as well as the revenue from the consumers, right. I think a lot of these revenues is actually for us to recoup the cost that’s associated with our payment platform and on the consumers, because we actually pay for whatever money that comes into our system. So as a result, when the money actually deeps our system, we actually sort of try to recoup that expense. So I think overall we look at payment as a business that may generate more revenue, but we continue to invest in it. And the charging mechanism is actually for us to make sure that we don’t sort of keep on increasing subsidizing that platform. So for now I think the more important thing for us is actually sort of continue to grow the platform rather than sort of making a lot of profit from it. Now in terms of your acquisition, the capital rates, if you think about this right, our revenue and profit is actually, cash flow is actually generated onshore. So we actually need to have cash offshore in order to pursue investments in acquisitions, because most of the companies even if it is Chinese companies right they had overseas hoarding structure, which requires U.S dollar investment, right. For example, if you look at JDs recent financing, we actually sort of put in U.S. dollars, if you look at [indiscernible] for example, you put in $1 billion that’s U.S. dollars. So that’s the reason why we actually need to raise cash outside of China in order to fund these investments. Overall, I’d say our investment strategy is that we continued to look at strategic alignment with us, we continue to look at the business momentum and positioning of the business that we messed in. We continue to look at the management quality and as a whole right, we use our investment strategy to enhance the overall ecosystem. So that; one, would benefit from the growth of internet into multiple vertical sectors within the economy; and two, we try to sort of create synergies between these companies and our own platform so that they would derive value from their growth.

Thank you. Miss Chan, please begin your closing remarks.

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

That does conclude our conference for today. Thank you for participating in Tencent Holdings Limited 2016 first quarter results announcement conference call. You may all disconnect now.