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

Wendy Huang - Macquarie Alicia Yap - Citigroup Eddie Leung - Merrill Lynch Alan Hellawell - Deutsche Bank John Choi - Daiwa Capital Markets Piyush Mubayi - Goldman Sachs Ming Xu - UBS Thomas Chong - BOCI Chi Tsang - HSBC Natalie Wu - CICC

Thank you for standing by. Welcome to the Tencent Holdings Limited 2016 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 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 annual results conference call for the year of 2016. 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 condition 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. 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 open the floor for questions. I will now turn the call over to Pony, please.

Thank you, Catherine, and good evening. Thank you for joining us. In 2016, we delivered another set of solid financial results while continuing to invest in our social platforms, digital content and ecosystem and new technologies which will increase our long-term competitiveness and drive future operational success. Let me update you on our key achievements in four strategic areas. In social, we deepened user engagement on our social platforms, Weixin and QQ. We recently launched Weixin Mini Program which facilitates convenient service delivery for our users. For QQ, we introduced live broadcast to enhance social experience and integrate AR technology to our popular red envelope campaign. In games, our smartphone games further expanded product profile and achieved strong revenue growth. During the year, we launched many successful titles, in particular our in-house title, Honour of Kings is the most popular mobile game in China with DAU exceeding 50 million. We expanded our global footprint via strategic partnerships and investments. In PC games, we increased our market share by focusing on serving core games and expanding life cycles of our blockbusters. In media and content, our news, video and sports platforms generated significant user growth. Our digital content monthly subscriptions more than doubled year-on-year. In music, we solidified China’s online news streaming market this year. And our new WeSing app is now by far the highest DAU karaoke app in China. In our ecosystem, we’re strengthening our supporting partners by ramping up our infrastructure services. Our mobile payment increased market share and daily transactions. YingYongBao and Mobile QQ plus widened their lead against peers and doubled their revenues year-on-year. And our cloud services expanded its capabilities and customer base and tripled revenue year-on-year. Operationally, we maintained clear leadership in core operating platforms, Weixin and WeChat combined MAU exceeded 889 million, up 28% year-on-year. Total MAU for QQ year-on-year to 868 million, within which smart devices MAU was 652 million, up 2% year-on-year. For Qzone smart devices, MAU grew 4% year-over-year to 595 million. For Smartphone games, we solidified our lead in several key genres, especially in PvP games and deepened our penetration in RPG genre. For PC client games, we remain the industry leader by revenues and user cases. For our media business, we saw rapid growth in users for activities such as sport and music. In mobile utilities, we continued to lead by monthly active users for mobile security, mobile browser and android app store in China. Financially, we delivered a strong set of results. For the fourth quarter of 2016, total revenue was RMB43.9 billion, up 44% year-on-year and 9% quarter-on-quarter. Non-GAAP operating profit was RMB14.9 billion, up 30% year-on-year or down 1% quarter-on-quarter. Non-GAAP net profit attributable to shareholders was RMB12.3 billion, up 38% year-on-year and 5% quarter-on-quarter. For the full year of 2016, total revenue was RMB152 billion, up 48% year-on-year. Non-GAAP operating profit was RMB58 billion up 39% year-on-year. Non-GAAP net profit attributable to shareholders was RMB45 billion, up 40% year-on-year. I now invite Martin to discuss strategic highlights.

Thank you, Pony. And good evening and good morning to everybody. I am going to update you on four areas which we have achieved new developments in 2016 and early 2017 fortifying our ecosystem and benefitting our users and partners. Starting with mobile payment, we achieved over 600 million monthly active users as at the end of 2016 and our daily payment volume nearly doubled year-on-year to over 600 million transactions a day. For social payments during the 2017 Chinese New Year Period, our usages exchanged over 46 billion Weixin red envelopes, up over 40% year-on-year. For commercial payment, we’re driving user penetration by creating more online and offline use cases, in particular, high-frequency transaction activities. And we’re driving merchant penetration by signing up flagship partners in key verticals such as retail, restaurants; and we’ve also proliferated our coverage of long-term merchants through channel partners. For example, Starbucks recently enabled Weixin Pay in their 2,600 stores in China. As a result of all these efforts, our commercial payment volume tripled year-on-year. Our mobile payment platform also served as an important channel for our wealth management platform, Licaitong and our banking affiliate WeBank to distribute the internet finance products. We believe our users benefit from greater availability of such products and our partners benefit from targeted access to our user base through our payment platform. Moving on to news and content services. We are China’s market-leader on mobile and PC news service, ranked by the daily active users. And we’ve also grown our user engagement and revenue significantly during the year. We provide news content to users through a number of different apps and online channels. In the app front, Tencent News and Kuaibao are two standalone apps with complementary use cases. Tencent News provides series and deep news content based on the combination editorial and machine recommendations. Kuaibao delivers personalized reading content to users based on deep learning of each individual’s interest graph. To enrich the diversity of our content library, we launched an open platform in early 2016 to facilitate content creators publishing articles. This has benefitted Kuaibao in particular, which DAU has grown to over 20 million, multiple times of the beginning of the year in 12 months time. In addition to our news apps, we operate news channels which reach a broader user base. These include Weixin and Mobile QQ plug-in, Official Accounts, Mobile QQ browser newsfeeds and also our QQ Kandian. These channels deliver revenues of broader content in a customized way to our users who can then share with their social graph through chat Moments. Our news and content traffic increased significantly during 2016. This substantial user traffic and the ability to target users are highly appealing to advertisers, which allowed us to increase the monetization of our new services through a combination of brand and performance advertising. In 2016, our mobile news advertising revenue grew more than a 100% year-on-year. Moving onto cloud services, we see substantial market opportunities accompanying our connection strategy. Starting from primarily serving game developers, Tencent now is a clear leader in the online game space and live video broadcasting space and is increasingly penetrating verticals including O2O, internet finance, municipal service as well as enterprise. A unique advantage we have is that Tencent has a solid foundation of technologies in areas such as security, payment, big data analytics, photo processing mini programs and artificial intelligence. Utilizing these technologies, Tencent cloud provides tailored solutions for various customers and industries. For example, the customized solutions with specialized data centers to satisfy internet finance customers needs to comply with regulations and with additional security. In addition, we expanded our cloud service sales force significantly in the year of 2016 and divided it by industry and geographic focus to better serve our customers. We also quadrupled our range of channel partners, which helped us to acquire more customers. As a result, in the year of 2016, our cloud service customer base and revenue more than tripled year-on-year. Looking ahead, we’ll further expand our overseas infrastructure and continue to invest heavily in cloud services in terms of challenge, technologies, infrastructure and products. Finally, I would like to share our thoughts about Mini Program, which has attracted quite a bit of attention when it was first launched in the beginning of the year. We view Mini Programs as an enhancement of our official account system designed connect offline service providers with users online. For service providers, Mini Programs allow them to present QR codes at their offline channels, which convert into an online interaction when users scan the QR codes. For users, Mini Programs enhance convenient and fast sampling of interactive experiences such as O2O services. Users who discover a service via Mini Programs may choose to go further and experience other functions in which case they would then download the service provider’s native application. As Mini Program is complementary to both Official Accounts and existing app ecosystem acting as an intermediary serving the process of user acquisition for app downloads. One very good example of the usage of the Mini Program is with Mobike, which is a bike sharing in China. Mobike users can access its Mini Program when they scan QR codes that fit on their bikes. Once users initiate the Mini Program, they can use basic features such as registration, deposit paying and renting bikes. For those who want to have more comprehensive services, they can download the app and experience the full suite of mobile application capabilities. As a result, after Mobike launched its mini program, its saw a sharp increase in users for both its Mini Program and its native app. We are excited about the user experience that can be created with mini programs and the benefits it brings to service providers and users. In line with Tencent’s philosophy, we will build our Mini Programs ecosystem at measured space to ensure the quality and variety of service offerings that will match our standards. Now I will turn to James to talk about business review.

Thank you, Martin. And good morning, good afternoon, and good evening as the case may be. In the fourth quarter of 2016, our revenue grew 44% year-on-year. Value-added services represented 66% of our revenue, within which online games contributed 42% and social networks 24%; online advertising was 19% of our total revenue and the other segment accounted 15% of total revenue, up from 5% in the fourth quarter of last year. For the full year, revenue grew 48%. Looking into value-added services, revenue in the fourth quarter was RMB29.2 billion, up 27% year-on-year and up 4% quarter-on-quarter. Social network revenue was RMB10.7 billion, up 51% year-on-year and up 9% quarter-on-quarter. Sales of digital content and game-related items were the main drivers of the year-on-year and quarter-on-quarter revenue growth; in particular, digital content revenues more than tripled, year-on-year. Online games revenue was RMB18.5 billion, up 16% year-on-year and up 2% quarter-on-quarter. The increase was mainly driven by player-versus-player and role playing smartphone games. For the full year, our VAS revenue was up 34%, our social networks revenue up 54% and our online games revenue up 25%. Turning to social networks. The QQ released location-based technology to help Now users discover interesting content broadcasted by people in their neighborhoods, contributing to increased DAUs for Now. During the Chinese New Year, our QQ red envelope campaign also used location technology to guide users to pick up augmented reality red envelopes distributed by participating merchants. Over 250 million QQ users joined the five-day event opening over 2 billion red envelopes. For Weixin, we introduced Mini Programs, which Martin has already discussed and we integrated our enterprise accounts into our enterprise Weixin app with the unified set of management tools that facilitate synchronization. This unification allows enterprises to manage their internal communication and administration matters with greater efficiency. Moving to PC client games. For the full year 2016, our PC client game revenue increased 9%. But just looking at the fourth quarter, historically in years such as 2013 and 2014, our PC game revenue typically declines quarter-on-quarter in the fourth quarter due to fewer student vacation days and fewer special events versus the third quarter. In 2015, our PC game revenue was unseasonably strong in the fourth quarter due to new item types in one of our biggest games. But in 2016, the usual negative seasonality from 3Q to 4Q we reasserted itself which resulted in a 2% quarter-on-quarter revenue decline and a rather modest 4% year-on-year revenue growth rate. PC game average daily active users decreased 13% year-on-year, reflecting, first, users continuing to shift a portion of their gaming times from actual game played to engagement with game content and other mechanisms such as forums, videos and e-sports events; and secondly, users for some titles moving part of their playing time from the PC edition to a mobile edition at the same IP. Taking CrossFire as an example, since we introduced the mobile version of CrossFire in late 2015, we have seen some impact on our PC version DAUs but the total unique CrossFire DAUs combined PC and mobile is substantially higher than what we had for PC alone. Looking at the global games market, the PC is still a vibrant platform, especially for hardcore gamers, and we believe that should remain the case in China too. We continue to operate some of the most popular games in the China market while seeking to nurture niche genres such as battle combat and sports as well s developing an e-sports ecosystem. For smartphone games, revenue in the fourth quarter was RMB10.7 billion, up 51% year-on-year and up 8% quarter-on-quarter; and revenue for the full year was RMB38.4 billion, up 80% year-on-year. According to AppAnnie, we became the top publisher globally in iOS. And we believe that our Android app’s presence is generally stronger than our iOS app’s presence. Strategically, we made progress along several dimensions within smartphone games. First, we maintained our leadership in casual games and introduced new casual genres such as a fishing game and a chess game. Second, we’ve been developing big DAU audiences for biggest player-versus-player games. Honour of Kings surpassed 50 million daily active users, and we launched freestyle basketball, which has become among the top three mobile sports games in China. Third, we deepened our penetration in the important role playing game category via titles such as JX Mobile, Fantasy Zhu Xian Mobile and Dragon Nest all consistently ranked in China’s top 10 iOS grossing chart since their launches. Looking forward, we believe represent the rich pipeline including both well-known IPs such as NBA, Contra and TLBB, as well as a range of new IPs. Moving onto online advertising. Segment revenues for fourth quarter was RMB8.3 billion, up 45% year-on-year and up 11% quarter-on-quarter. Brand advertising revenue was RMB3.1 billion, flat quarter-on-quarter and up 11% year-on-year. User traffic created more inventories on mobile newsfeeds and video, but our brand advertising revenues being impacted by two negative factors. First, many traditionally brand oriented advertisers are increasingly purchasing performance apps, which ships revenue from our brand to our performance category; and second, as our video subscriber base grows, we have less opportunity to have pre-role and mid-role apps before and during our content, shifting revenue from our brand ad to our social networks category. Our top five brand advertiser categories, online services, in particular ecommerce, automobile, food and beverage, personal care and consumer electronics. Our performance advertising revenue is RMB5.2 billion, up 77% year-on-year and up 18% quarter-on-quarter, benefiting from positive seasonality for ecommerce in the fourth quarter. More advertisers joined self-service ad platform especially our pre-launched neighborhood apps in September. The total number of Moments advertisers more than doubled in the past four months. Weixin Moments and Official Account ads were the biggest contributors to the sequential and year-on-year growth, and we also added more inventory in our app store Qzone and Mobile QQ Browser products. For the full year, our online advertising was RMB27 billion of revenue, up 54% year-on-year. Looking more closely at Tencent Video, we continue to invest in premium content which can contribute significantly to user growth and time spent. In addition to high profile licensed premium content, we’re increasing the investment in original premium content, leveraging our ecosystem to access upstream IPs from literature of games, as well as across platform user insights. We can create original content that is unique and exclusive to our platform. While there is a time lag between commissioning and creating and then screening our original content, we did put some of our original content on in late 2016 including two big budget drama serials, a few animated TV shows and several variety [ph] programs. Original content is proven particularly effective at growing our video subscription base, which increased over 300% year-on-year in the fourth quarter to over 20 million subscriptions. Specifically, iResearch ranked our Gui Chui Deng or Candle in the Tomb TV series, which is based on a number of novels published by online literature business is achieving the highest user coverage of any online only drama serial during the fourth quarter. With that, I’ll pass on to John to speak to our financials.

Thank you, James. Hello, everyone. For the fourth quarter of 2016, our total revenue was RMB43.9 billion, up 44% year-on-year or 9% quarter-on-quarter. Gross profit was RMB23.6 billion, up 33% year-on-year or 8% sequentially. Operating profit was RMB13.9 billion, up 28% year-on-year or down 4% quarter-on-quarter. Share of losses of associates and joint venture RMB522 million in the quarter, down from RMB1.3 billion year-on-year or RMB619 million sequentially while. On a non-GAAP basis, we generated profits of RMB391 million in the quarter comparing to losses of RMB164 million year-on-year or RMB107 million in the third quarter. Income tax expense was RMB2.4 billion, up 20% year-on-year or down 2% quarter-on-quarter. Effective tax rate was 18.6% for the fourth quarter and 19.7% for the full year. Net profit attributable to shareholders was RMB10.5 billion, up 47% year-on-year or down 1% quarter-on-quarter. For the full year of 2016, total revenue was RMB151.9 billion, up 48% from 2015. Gross profit was RMB84.5 billion, up 38% from 2015. Operating profit was RMB56.1 billion, up 38% from 2015. Net profit attributable to shareholders was RMB41.1 billion, up 43% year-on-year. For the fourth quarter, on a non-GAAP basis operating profit was RMB14.9 billion, up 30% year-over-year or down 1% quarter-on-quarter. Net profit attributable to shareholders was [RMB4.3] up 38% year-on-year and up 5% quarter-on-quarter. Operating margin was 34%, down 4 percentage points year-on-year or 3 percentage points quarter-on-quarter. Net margin was 28%, down 1 percentage point year-on-year or 1 percentage point quarter-on-quarter as well. For the full year of 2016, on a non-GAAP basis, operating profit was RMB38.2 billion, up 39% from 2015. Operating margin was 38%, down 3 percentage points. Net profit attributable to shareholders was RMB45.4 billion, up 40%. Net margin was 30% down 2 percentage points. Let’s turn to segment gross margin for the quarter. Gross margin for value-added services was 63% broadly stable year-on-year or down 2 percentage points quarter-on-quarter. The sequential decline reflected, mainly revenue mix shift and increase in share based compensation relating to 18th anniversary bonus shares. Gross margin for online advertising was 47%, down 5 percentage points year-on-year and reflecting increased investments in video content. Sequentially, it rose 10 percentage points as a result of event driven content cost in the first quarter, such as Rio Olympics and Voice of China game up [ph] season. For the full year 2016, gross margin for value-added services was quite stable at 65% compared to last year. Gross margin for online advertising decreased 6 percentage points to 43%, mainly due to greater video content investment. Moving on to operating expenses, selling and marketing expense was RMB4.5 billion, up 48% year-on-year or up 36% quarter-on-quarter. The year-on-year and quarter-on-quarter increases were mainly due to higher marketing and promotion spending for games and Weixin payments businesses. Selling and marketing expenses represented about 10% of quarterly revenue. Included under the G&A research and development expense was RMB3.6 billion, up 45% year-on-year or 14% quarter-on-quarter. Total G&A expense was RMB6.9 billion, up 45% year-on-year or 17% up Q-on-Q. R&D represented about 8% of quarterly revenue and total G&A was 16%. Share-based compensation was 4% of quarterly revenue. In celebration of the Company’s 18th anniversary, we awarded 300 shares to every employee. Just first 100 shares was vested in November of 2016 and the remaining 200 shares in the following two years. In relation to this exercise, we booked stock-based compensation expenses of over RMB500 million in the quarter. On a full year basis, selling and marketing expense was RMB12.1 million, up 52% from 2015 and represented 8% of revenue. R&D expense was RMB11.9 billion, up 31% from 2015 and represented 8% of revenue. Total G&A expense was RMB22.5 billion, up 33% over 2015 and represented 15% of revenue. As of quarter-end, we had approximately 39,000 employees, up 27% year-on-year or 2% quarter-on-quarter. Let’s go through margin ratios for the fourth quarter. Gross margin dipped 4.5 percentage points year-on-year to 53.9%, mainly due to increasing contribution from the other segments, which carried lower margin, as well as continue increasing video content costs. Gross margin was stable sequentially. Non-GAAP operating margin was 34.1%, down 3.8 percentage points year-on-year, reflecting lower gross margin. Sequential decrease of 3.1 percentage points was mainly due to seasonal increase in selling and marketing expenses less dividend received from the investing companies and donation made to Tencent Charity Funds in quarter four. Non-GAAP net margin was 28.3%, down 1.3 percentage points year-on-year and 1.2 percentage points quarter-on-quarter. On a full year basis, gross margin was 55.6%, down 3.9 percentage points. Non-GAAP operating margin was 38.3%, down 2.3 percentage points. Non-GAAP net margin was 30.3%, down 1.6 percentage points. Turning to earnings per share and proposed dividend for 2016. GAAP basic EPS was RMB4.383 and diluted EPS was RMB4.329. Non-GAAP basic EPS was RMB4.844 and diluted EPS was RMB4.784. Subject to the approval of shareholders at annual general meeting to be held on 17 of May 2017, we are proposing an annual dividend of HKD0.61 per share. Let me share some key financial metrics for the year before rounding up this presentation. For the fourth quarter, total CapEx was RMB2.8 billion, up 51% year-on-year or down 22% quarter-on-quarter. Operating CapEx was RMB2.1 billion, non-operating CapEx was RMB709 million. For the full year of 2016, total CapEx increased 57% year-on-year to RMB12.1 billion. Free cash flow reached RMB17.2 billion, up 6% year-on-year or 21% quarter-on-quarter, mainly due to increasing operating cash flow from our games business. On a full year basis, free cash flow was RMB55 billion or US$8 billion, up 50% year-on-year. At as at year-end, our net cash position was about $18.1 billion RMB, down 5% year-on-year and up 117% quarter-on-quarter. The year-on-year decrease was mainly due to payments for M&A, license content and dividend payments, partially offset by free cash flow generated from operations during the year. The substantial increase mainly reflected approximately RMB7.8 billion, recouped from Supercell financing arrangement in the fourth quarter when we compare with quarter three. The fair market value of our listed associates and available for sale financial assets were approximately RMB89 billion. This concludes our presentation. Thank you.

Thank you, John. We shall open the floor for questions now. And before you ask your questions, please tell us your name and also restrict yourself to one question and we’ll start the queue for the second round of questions if we have time. Operator, shall we take the first question, please?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from the line of Wendy Huang from Macquarie. Please go ahead.

Thanks, management, and congratulations on the very solid results, especially the progress you made on the payment front. So, with your payment daily transactions now exceeding 600 million, what kind of breakdown are you seeing between the online versus offline? And also, can you provide some color of the transactions breakdown between the virtual items versus [indiscernible]? And also your other strategy which includes payment, achieved gross margin 20%. So, when do you still actually look at the payment to break even or make some breakthrough on the monetization side and what kind of a take rate you are currently charging towards your merchants? And finally, still rate regarding the payment, I think in light of the recent upcoming, online clearing platform implemented by PBOC, how do you see actually this new online clearing platform to actually change Tencent’s payment ecosystem and also market share in the longer term? Thank you.

Okay. Let me take that question. In terms of payment transactions, we have achieved, as we said, more than 600 million daily transactions. And if we have to rank, the basic ranking is sort of social payment, which include red packets and then online payment and then offline payment. So that’s the sequence. And we felt this is sort of consistent with the way we leveraged to make our payment platform a ubiquitous platform. We actually leveraged the red packets to allow users to have a very unique experience and very high frequency experience. And leveraging that we were able to deliver commercial transactions to online service providers and subsequently sort of in the course of last year and we were able to leverage that to convince a lot of offline merchants to you use our payment solution. And as a result, we proliferated the payment platform on offline basis. So, that’s sort of breakdown as you can see. In terms of magnitude, as we said, the total number of transactions close to doubled on a year-on-year basis. And on the other hand, the commercial transactions, which include both online and offline commercial transactions actually tripled on a year-on-year basis. So, you can have a sense of the magnitude of the growth among the different segments. Now, in terms of the monetization of the payment platform. We actually view payment as a infrastructure service for our ecosystem and our intension is actually to leverage, our payment platform to engage our users to sovle the paint points between merchants and users. As a result, we can actually allow our users to conduct more activities on our platform and we can also allow a lot of our partners to get paid from the users. As a result, we actually benefit as the platform. So, our main motivation is not actually to make money. If you remember around this time of last year, we were actually sort of making losses, quite a bit of losses from our payment platform. And then subsequently, we made some adjustments so that we were able to recoup some of the costs associated with bank charges. And now, you can see we do make some gross margin. At the same time, we actually put in a lot of investments at the marketing level, at infrastructure level, at people level. So by and large, we consider payment at this point in time as to infrastructure service rather than a service that generates profit for us. And I think that status will maintain for quite some time. And finally, you’re right in pointing out that sort of there is going to be a new system put in place by PBOC. And I think there are two things. One is sort of on a technical level, we are actually sort of helping PBOC quite a bit in terms of organizing the new platform and also sort of contributing our own technology to help the PBOC platform to develop. And over time, we expect to some transactions will actually sort of be migrated to the centralized platform. We believe if there is a central clearing platform that sort of is very scalable, it’s actually sort of good for the entire industry. The second one is actually related to part of the float of the users, which need to be deposited with PBOC. And right now sort of roughly 12% of the float is actually required to be deposited with PBOC and which actually sort of we do not receive any interest. We believe over time, this number may increase. But at the same time, I think sort of, the government is also cognizant of the fact that a lot of the payment solution providers are actually sort of rely on some of this interest to actually recoup some of the costs. So that’s why, I think there will be measured schedule in terms of increasing that deposit number.

Okay. Thank you, Martin. Operator, shall we take the next question, please?

Certainly. Next question is from the line of Alicia Yap from Citigroup. Please go ahead.

Hi. Good evening, management. Thanks for taking my question. My question is related to advertising. I just wanted to get a sense how much of the decelerations of the brand advertising revenue growth is attributed to the shifting of the ad inventory from the brand to the performance base versus the impact from the soft macro and also the impact from the subscription cannibalization? So, I appreciate if management could share some color, the upcoming trend of the brand growth outlook as well. On the performance base side, can management share some feedback on the recent small scale adoptions for the short form video ad format in Weixin? So, any plans for a broader rollout on the video format in the future and also the ad inventory increase in the coming months? Thank you.

Okay. In terms of the brand advertising question, the answer differs by the type of inventory you’re thinking about. So, for our online video advertising revenue, the deceleration is likely primarily due to the growing percentage of video MAUs that are also video subscribers, which entitles them to skip most forms of in-feed, pre-feed advertising. On the other hand, if you look at our news advertising revenue, which is actually our biggest brand ad category or if you look at our mobile browser or our mobile app store which are very fast growing categories, then the primary change is the mix shift from inventory being allocated to brand into inventory being allocated to performance. So, for those products, the overall advertising revenue is growing quite quickly but it’s just the brand proportion is declining, the performance proportion ramps up. In terms of the overall macro, I mean it’s always nice to blame one’s challenges on the macro environment. But, in reality, the Chinese macro economy I think is being fairly healthy the last few months. So, it would be kind of an easy escape for us and not necessarily a correct attribution for us to say that the brand advertising slowdown was due to macro. I mean it’s certainly less due to macro and more due to the substitution effects. In terms of the second question around advertising on a short form video within Weixin, I mean clearly that’s a global trend toward putting more advertising around short form video, especially on social networks and equally clearly it’s a trend that is being intense and we would follow with high degree of carefulness. So, it’s to not upset our users. And so, it’s to provide a good environment and a high click rate for our advertisers. So, we are seeing very rapid growth in video used within our social networks. But, we recognize that putting in a heavy ad load around those short form videos could both be irritating to users and for those users who are on wireless or on Wi-Fi plans, costly for those users as well. So, we’re moving forward at a measured pace.

Thank you. Operator, next question please.

Next question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead.

Hi, guys. Thank you for taking my question. I have a question more on the potential impact of certain applications on your social apps. So, we have seen more-on-more of your peers are launching short form video content, as far as mobile news feed apps. So, wondering, if you have seen any cannibalization of this type of new applications on your social apps and how you are going to deal with that, any problem? Thank you.

I think you’re right in pointing out that new short form video and news feeds are becoming very popular product category among a lot of industry players. I think, as a matter of fact, if you look at our -- especially in my prepared remarks, we talk about news on content services. We have also launched a number of these products within our -- both in terms of sort of individual app like Kuaibao as well as in our various different products as product feature. And as a result actually, our overall page views on text, on photos, pictures, as well as on short video has actually increased quite substantially across our platform. So, I think it’s a phenomenon that clearly the mobile handset is actually bringing to the industry by having a new way for distributing content, not just based on editorial way or social way. If it’s actually based on machine learning, you can actually sort of map the interest graph of users better and as a result you can actually sort of increase the amount user engagement on those contents. And also certainly by having a platform of a more diversified content, there can be sort of a lot of different writers, writing articles and shooting short media of different kinds, and you have a platform to include these contents and sort of it would add also increase the user engagement. So, I would say, this is an industry phenomena, and we actually have also rolled out products and services to -- as well as overall content platform, to benefit ourselves from this. And as a result, actually our total page views across all these formats have actually increased quite substantially, as well as our revenue has actually increased quite substantially too. So, it’s actually a positive for us.

Thank you. Operator, next question please.

Next question is from the line of Alan Hellawell from Deutsche Bank. Please go ahead.

Thank you very much. Just a question on ads. If we hypothetically toggle together video subscription revenues and ad revenues, do we see any trappings of a potential improvement in that P&L from what has been a chronically negative margin business? And related to that or as part of that though, could you just give us an update on the number of P4P advertisers we have on the platform now and what we can expect throughout 2017? Thank you.

I think, if you take the video advertising subscription revenue together, they’re growing at a relatively healthy rate, albeit the mix is obviously shifted fairly substantially from advertising being a growth driver to subscriptions being the primary growth driver. We’re not focused on profitability for the business this year. And I think that in the longer term, it is correct to observe that globally video subscription business is a much higher margin than video advertising businesses, ESPN or CNN achieved three to five times higher margin than CBS or ABC. But at this point in time, I think we and our peers in the market are investing to grow the video subscription business, particularly by purchasing original content which we alluded to in the remarks earlier. So, for the foreseeable future, you should expect the video business to remain loss-making, although in the longer run, the subscription aspect should be breakeven sooner and become more profitable within the advertising aspect. In terms of the number of pay for performance advertisers, we don’t necessarily disclose that every quarter, I am afraid.

Okay, thank you. Next question, please.

Next question is from the line of Jun Young [Ph] of Mizuho Securities. Please go ahead.

Hi. Good morning or good evening guys. Just a question on your Mini app. I know that Martin gave a little bit of update in the prepared remarks. I just wanted to just ask what metrics should follow in terms of how to gauge the performance of that business going forward. And second of all, a follow-up to that is, can you give us an update in terms of like how many partners you’re working with, why the monetization opportunity is in the near-term and at the same time what verticals are most active in that particular field? Thanks.

Yes. I think I have to reiterate sort of Mini Program. So, I think sort of the purpose is actually to solve a pain point in the ecosystem in a sense that a lot of offline service providers, when they actually can access users, it’s very difficult for them to provide a sampling of their services online to these users and they sort of get people to sign on to our existing infrastructure, which is an Official Accounts, the Official Accounts can allow the sending of content but certainly not really sort of readily available interactive services. And if the service -- try to want to induce the users to download an app, the barrier of entry is actually quite high. So, by leveraging Mini Programs, service provider can actually sort of help the users sample the online interaction very quickly and as a result provide, value to the users and at the same time users actually like the service; they can actually go ahead and download the maiden app. So, I think that’s sort of what we’re trying to provide. And as a result, I would say if you look at the type of service providers, it’s essentially sort of mostly offline service providers who can actually provide some kind of interactive services online. And if you look at sort of our purpose of launching this service, this platform is actually sort of solve a pain point, then -- I think it’s not actually for short-term profit. I don’t think Mini Program would actually sort of generate any significant financial return to us, but it would actually help our ecosystem to be more convenient for both uses and service providers. And we believe that from a long-term perspective, we can actually help users and service providers to connect in a more seamless way and benefit as a platform. I think that’s really sort of what our intention is. So, as you see -- or how do you actually monitor the performance of this platform. I think looking at some of the used cases that’s in the market I think it’s actually a better way to observe it. If you look at Mobike, I think very clearly, they have benefited a lot from this mini program. And we actually hope in the near-term to just work with different service providers to establish some really great pilot projects and then demonstrate the value proposition of mini programs, and as a result help more and more service providers to get on this platform.

Yes. Next question, please. Thank you.

Next question comes from the line of John Choi from Daiwa Capital Markets. Please go ahead.

Good evening and thank you for taking my question. I have a question on the AI, artificial intelligence. Which are the areas that Tencent is considering, when it comes to AI investment? And also, from the management’s perspective, where does Tencent stand in terms of other players within the industry, given that AI is becoming such important part of technology these days? And just quickly on cloud, I remember that on the prepared remarks that, it seems like Tencent is going to invest more. So, could you elaborate which areas management sees in terms of potentials within the cloud opportunities for Tencent in long term? Thank you.

Yes. In terms of AI, we actually view AI as a core technology across all our different products. So, what we’re trying to do is actually in each one of our businesses, we encourage our team to apply, to build up talent pool as well as to apply the core technologies around AI, machine learning and deep learning. And at the same time, at the corporate level, we also established an AI lab, which is more research based, so that they can actually focus on more basic building blocks around AI. And if you look at sort of the areas of AI that we are investing in, it would include areas such as speech recognition, it would include picture and photo recognition, computer vision, natural language processing and all sorts of deep learning, as well as basic architecture for deep learning platform. And the way, we look at this technology is also that in order to build long-term competitiveness, you don’t only need sort of the people, as well as sort of the mathematical and computational expertise, but at the same time, you also need a lot of data, you also need a lot of usage scenario, so that you can actually apply these AI technologies, and as a result you can actually keep progressing. So, I think if you look at our actual products, around content recommendation, around our advertising, around our photo processing app, there are actually a lot of existing products which will benefit from AI. We are also sort of investing in more pure research projects. You may notice that our Go chess player, a Fine Art, has recently won the championship in UEC competition. That’s an example of our research project. And at the same time in the future, we believe that AI technology can also allow us to explore new areas such as personal assistance, such as maybe even sort of autonomous driving. So, these are the areas that we will focus on. Now, in terms of cloud, we believe that at this point in time we have a lot of internally developed technologies which we can actually sort of package into the cloud and share with the broader community and ecosystem. So, if you look at for example, we are the leader now in gaming cloud as well as in video cloud. And the reason we were able to actually come from behind and sort of took the leadership is because of the fact that we have a lot of core technologies in those fields, which we share with our ecosystem. And over time, we’re going to package more and more of our service -- our technologies around big data, around scalable system, around security, and mini programs, payment platform in order to benefit cloud customers. And we are also building up our sales and distribution channel in order to scale up our business. We believe that at this point in time, we want to sort of keep on investing in infrastructure as well as our sales and distribution channel, so that we can actually sort of build scale of our business. Over time, if we can actually sort of package more and more of our core technology into a PaaS or SaaS solutions for our customers, then that would be another add a layer of opportunity for us to generate more value-added for our customers and also more monetization opportunity for ourselves.

Okay. Thank you very much for your question. Operator, next question please.

Certainly. The next question is from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.

Thank you for taking my questions. May I just ask a question about the gaming revenues, which appear to have slowed down in exit of the year at a slower run rate than we’ve seen for the previous three quarters? Could you give us any sort of indication whether we should expect this to be the run rate into 2017? And also if you could touch, you talked about four new PC games, six new mobile game launches for 2017 and you’ve named them all. Could you give us a sense of how big we could expect these to be, or any other color that would help us gauge the size? And we’re concerned that I think you said in the press call that the restriction on Korean games won’t impact you? Thank you.

Yes. So, I’m not sure this would be all that helpful for you. But, in terms of the game revenue growth in the fourth quarter 2016, as we mentioned, if look back at prior years, historically Tencent’s PC game revenue is seasonally strong in Q3, when there is summer holidays and events around the summer holidays and seasonally weaker in Q4. 2015 was an exception to that pattern, because of some specific new items within our biggest game. Then in 2016, we reverted to that pattern with PC games descending from Q3 to Q4, which was different from 2015 and makes for a tough year-on-year comp but in line with what’s happened in years prior to 2015. So, I think that’s all we can really say about the fourth quarter PC game revenue growth deceleration. In terms of how successful the new games prove to be, obviously we hope that they are successful as possible. In terms of the impact of the regulations around Korean games. So, those Korean games that are already operated in China and for those new Korean games, which are not yet operated but already been approved, as best we can tell at this point in time, should be business as usual. Now, there may be other Korean games that we’re hoping to source in the future and if they are delayed, then that would essentially be unhelpful. But against that, A, Korea is just one of many sources for the games along with China itself, the U.S., Europe and so forth for us. And then being our experience, it’s often the case that delaying a game, certainly a few months or quarters tuning it results in a bigger, better game once we do finally publish the product as opposed to rushing to market as soon as possible.

Thank you. Operator, next question please.

Certainly. Next question is from the line of Ming Xu from UBS. Please go ahead.

Thank you, management. I have a question on the margin impact from the video and cloud. So, your competitors, both of the two competitors announced a very aggressive content budget for the online video in 2017 and also we recently read some news about one of the very aggressive bids from you on the government cloud program. So, my question is firstly, can you maybe give us more color on your online video content cost for this year? And secondly, what kind of revenue or market share target for your online video and cloud service business? And thirdly, to achieve those targets, what kind of margin drag or loss can you tolerate?

Yes. These two businesses are definitely sort of new areas that we invest in. I would say sort of video and loss is actually quite a bit bigger than cloud business loss. But on video, as we have repeated multiple times before, we actually view video as a very important part of our overall customer experience because it actually provides a lot of engagement with our users on a very large scale. So, as a result, we felt this is actually an area that despite the fact that it’s losing us quite a bit of money, we actually feel that it’s important for us to invest in. And as you point out, in order to stay competitive in this market, we actually have to spend quite aggressively on the content. And I think that’s exactly what we have been doing and will continue to do. On a medium-term basis, we felt the loss would actually increase because the cost of content has actually increased much more than the revenue increased in the market, despite the fact that you can see advertising revenue has been increasing and as subscription revenue has been increasing even more. I think over time, as we continue to do original content, as we continue to increase our monetization around subscription and at the same time, if we can actually participate in the creation of the original content and share some of the upside in terms of content, then the economics may actually sort of move toward the more positive side. But I think that would happen in a few years, not these two years. In terms of cloud, the point that you mentioned is really sort of more of an isolated case. I think what we do now is actually in some of the smaller orders, we actually allowed our sales people to make on the spot decisions on how to bid for projects. And I think like it or not, our frontline people decide to make that bid. I think it’s much more of an isolated case. And given it’s small order and frankly it has attracted a lot of attention in the industry and it probably pays back from a media value perspective. But I think on a longer term basis, we don’t view undercutting price as the core strategy for us in cloud, of course we will provide a very, very competitive price in the market. But as I said in a cloud service, over time, we believe that it’s actually the value addedness that would actually differentiate the cloud service providers. And we are very confident that with our technology, we can actually do that.

Thank you. Operator, in the interest of time, we will take the last three questions please.

The next question is from the line of Thomas Chong from BOCI. Please go ahead.

Hi. Thanks, management for taking my questions. I have two quick questions. The first one is about Honour f Kings. Can management give us some color about the performance in the month of January and February? And are we seeing accelerating trends for mobile games in the first quarter? And my second question is more on order basis. Can management give us some color about the ARPU for MMO, advanced casual and smartphone games in the fourth quarter? And my final question is about the operating expenses trend, in particular the sales and marketing trend in 2017?

Yes. I think on Honour of Kings side, I think if you -- in the market, you can feel that sort of in January and February, it has become more popular among the users. I think that’s the extent we can give you because certainly on a financial basis, we don’t actually provide guidance and will continue with this tradition. Now with the margin question, I’ll pass to John.

In relation to the ARPUs for MMOG, the quarterly ARPU is within 310 to RMB450 and for advanced casual game, it was within 100 to 365. Whereas for platform games, we treat it as a one portfolio; it ranges from 145 to RMB155 per quarter. In relation to the selling and marketing expenses, I think at this point in time, it is not really going at a very quick rate, taking into account that year-on-year growth is only increased by about 36%, which we consider not to be very significant, especially when certainly a marketing costs are basically discretionary in nature. And if there are opportunities, we’ll invest heavily on it; whereas under normal circumstances, I think it will grow quite organically.

Thank you. Next question, please?

Next question is from the line of Chi Tsang from HSBC. Please go ahead.

Great. Hi, everybody. Thanks so much for taking my question. I wanted to ask about WeChat Moments user experience. Can you share with us what sort of metrics you are monitoring to sort of measure user experience; what trends you are seeing and how people are spending time on Moments? And I am wondering if you see if there is a lot more potential, engagement time that people can spend more on WeChat Moments.

Yes. In terms of WeChat Moments, we obviously do look at the number of users who actually sort of use the feature and how many times they actually open it, as well as, how much time you spend on it. But at the same time, we actually sort of pay a lot of attention to the quality of the content that people are seeing. Because one of the things that we actually do not want is actually sort of people get overloaded with the content which is sort of low quality. So, there is a range of quantitative indicators that we look at, but at the same time we also saw a lot of qualitative indicators to make sure that the quality of engagement is actually high. I think so far, we believe that WeChat Moments is still very vibrant product user experience and the quality is actually quite good.

Thank you. Operator, we’ll take the last question, please.

Certainly. Last question comes from the line of Natalie Wu from CICC. Please go ahead.

Hi. Good evening, management. Thanks for taking my question. So, my question is regarding the game business. So, given the fact that Honour of Kings resembles League of Legends in a lot of ways and Honour of Kings is obviously delivering a very impressive performance during the past several months, so just wondering will Honour Kings have some kind of cannibalization effect on League of Legends in terms of active user, engagement in revenue et cetera?

Yes. I think the two games actually cater to different kind of positioning. If we look at League of Legends, it’s actually sort of catered to core gamers. And if you look at Honour of Kings, it’s is actually experienced that’s catered to more casual players. And so far, what we have found is sort of the growth in Honor of Kings is accompanied of continued growth in League of Legends. So, in some cases, users actually sort of will play Honour of Kings; when they get more and more hardcore, they can actually sort of move over to League of Legends. So, what we have seen is that they’re not really hurting each other.

Okay. Thank you very much, operator. We’re closing the call now. If you wish to check our press release and other 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.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participating Tencent Holdings Limited 2016 earnings conference call and annual results announcement conference call. You may all disconnect now.