Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Holdings Limited 2019 First Quarter Results 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'll now hand the conference over to your host today, Ms. Jane Yip. Thank you, please go ahead.

Thank you. Good evening. Welcome to our 2019 first quarter results conference call. I'm Jane Yip 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 the 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 risk factors and non-GAAP measures, please refer to our disclosure documents on the IR section of our website. Let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau, will discuss strategic review. Chief Strategy Officer, James Mitchell, will speak to business review and Chief Financial Officer, John Lo, will come through with a financial review before we open the call for questions. I will now turn the call over to Pony.

Thank you, Jane. Good evening, everyone. Thank you for joining us. Our key platforms continue robust growth in users, traffic, and activities, acknowledging our vibrant ecosystem and reinforcing our expansion from consumer Internet to industrial Internet. In the first quarter of 2019 we generated moderate growth in areas such as online games and our new segment, FinTech and Business Services contribute to significantly to overall revenue growth year-on-year. We have also managed our costs effectively amidst the challenging macro and business environments. As a result for the quarter total revenue was RMB 85.5 billion up 16% year-on-year and broadly stable quarter-on-quarter. Gross profit was RMB 39.8 billion up 7% year-on-year and 13% quarter-on-quarter. Non-GAAP operating profit was RMB 28.5 billion up 13% year-on-year and 27% quarter-on-quarter. Non-GAAP net profit attributable to shareholders was RMB 20.9 billion up 14% year-on-year and 6% quarter-on-quarter. Now, let me give you a quick update on our key platforms. In Social, combined MAU of Weixin and WeChat increased 7% year-on-year to over 1.1 billion. Smart devices MAU of QQ increased slightly year-on-year to over 700 million. We think which young users became more engaged and grew double-digit year-on-year. Qzone smart devices MAU was 572 million up 4% year-on-year. In Online Games we expanded total user base for our overall portfolio. Daily active user benefit from content update and in game marketing activities in several key PC and mobile titles such as Honour of Kings, LOL and DnF as well as our new game Perfect World Mobile. In Media, Tencent video average daily active users increased year-on-year while daily video views increased rapidly benefiting from short videos and popular anime series. Short and mini video daily views grew strongly within our media fees business in Mobile QQ content and Tencent News. In Payment our merchant network further expanded and enabled strong growth in commercial payment business. We operate the largest mobile payment platform in China measured by active users and the number of transactions. In utilities our mobile security products continue to strengthen market leadership in its strategically important segment. I will invite Martin to discuss strategic review.

Thank you, Pony and good evening and good morning. Over the years we have been incubating new businesses organically within the company. Some new businesses have reached sig scale. Starting this quarter, we have a new revenue stream, a segment called FinTech and Business Services, to mark a new milestone for the evolution of our business. This revenue segment reflects, number one the emerging demand for digital payments, financial services and enterprise solutions as China's economy grows rapidly; number two, the synergies between these services with our existing online businesses; number three, the robust scale and operational expertise in these areas accumulated through substantial organic investments for years. And overall, this segment demonstrates our drive to expand our company capabilities as well as to broaden our revenue base. Now let's take a closer look at FinTech services which constitute the majority of revenues within segment. We have two revenue streams in this subsegment; number one Payments, when merchants pay us transaction fees and consumers pay us cash withdrawal fees and credit card repayment charges. Number two other FinTech services such as wealth management, micro-loan and insurance products where financial institution partners pay us fees and commissions for distributing the products to our user base. As for the business dynamics, social payment fees cover significant costs that we pay to banks when consumers move money from their bank accounts into our payment system. On the other hand commercial payment generates reasonable gross margin, but there is marketing costs which may dial up or dial down depending on the competitive dynamics in the market. Micro-loans and wealth management products are generally higher in margin. Overall, we operate out FinTech businesses in a highly regulated environment. Under Business Services we have two revenue streams; one cloud, where enterprise customers pay for IaaS, PaaS and SaaS products as well as our tailored technology solutions. Secondly, smart industry offerings where our partners pay service fees for our industry specific solutions to assist enterprises in their industry embarking on digital transformation. In terms of business dynamics, cloud business where IaaS and PaaS products make the majority of our offerings have low margins and is capital intensive. SaaS and technology solutions which are currently subscale in China is expected to generate healthy margins over the longer run. Smart industry solutions are at nascent stage, but carry attractive business potentials in the future. Now moving on to discussing milestones and now look forward to two different subsegments. For FinTech services we launched Tenpay in 2005 built the technology rails for our payment service on PC and later extended into mobile. In 2013 Weixin expedited mobile transition with the launch of Weixin Pay. User adoption quickly expanded especially during the Chinese New Year in 2014 when we used a Red Envelope gifting function to unleash the power of social payment and later to shape consumer habit of using Weixin Pay in commercial transactions. We increased our user stickiness by creating more and more use cases over the years. In 2016 we kicked off our merchant adoption campaign to deepen offline penetration. We signed up flagship partners in key verticals such as retail and restaurants. In addition, we proliferate our coverage of long-tailed merchants through channel partners as well as leveraging our investees and merchant network. For mom-and-pop store merchants we provided innovative and easy to deploy turnkey solutions such as QR codes and mini programs to enable online and off-line convergence. These initiatives allowed us to provide point-of-sale solutions to tens of millions of merchants nationwide. Executing these initiatives enables payment-related revenue generated today as well as supports the efficient distribution of financial services such as personal wealth products and micro-loan products online. With a strong focus on risk management we have grown our FinTech business at a measured pace. FinTech business also allowed us to build enterprise relationships and industry expertise that are complementary to our emerging business services subsegment. Now for our business services, our cloud infrastructure was already at substantial scale for meeting our internal cloud requirement before we began serving external customers. Build upon our established strength the Internet sectors such as games and video, we expand our external cloud business integrating our technological capabilities in areas such as security, AI, big data analytics and LBS. Through cloud based solutions our customers can apply advanced technologies to their businesses facilitating the digital upgrade. We differentiate ourselves in this business not only with advanced technology, but also by providing customers with options to connect to our vast and active user base on Weixin, QQ, Officer Accounts, mini programs, payments and WeChat Work, et cetera. We work with our channel partners and ISVs to develop tailored offerings including over 200 IaaS, PaaS and SaaS products and more than 90 industry specific solutions. Through data centres across 25 geographic regions worldwide we're able to better serve our customers. In return our scalable services allow us to pass along the benefits to customers through attractive rates or deals maximising value for their IT budget. Benefiting from the above initiatives and our full suite of business services we made breakthroughs in smart industries such as finance, retail, municipal services, tourism and healthcare. As example, we have built showcases around tourism services in Yunnan Province and municipal services via Digital Guangdong initiative. To conclude this strategic review session, our decade long investment in FinTech and business services proved that our strategy of allocating capital through a range of organic investments can expand our capabilities, broaden our revenue base, as well as generate sustainable profitable growth for the future. Now with that, I will pass to James to talk about our business review.

Thank you, Martin. For the first quarter of 2019 our revenue grew 16% year-on-year. VAS remained our largest revenue segment representing 57% of our revenue within which online games was 33% and social networks 24%. Online advertising represented 16% of our revenue and our new FinTech and business services segment contributed 25% leaving the others segments at 2% total revenue. Diving into value-added services segment revenue was RMB 49 billion in the first quarter up 4% year-on-year and up 12% quarter on quarter. Social network revenue was up 13% year-on-year and up 5% quarter-on-quarter. Virtual gifts and live streaming services and video subscriptions contributed to the year-on-year and quarter-on-quarter growth rates and increased in game items sales also contributed to the sequential revenue growth. Our total VAS subscription accounts increased 13% year-on-year top 165 million due to the growth in online video and music services. Our video subscription accounts were 89 million, up 43% year-on-year, but stable quarter-on-quarter as the rescheduling of several top tier drama series impacted our rate of new subscriber additions. For online games our total cash receipts were up 10% year-on-year while our reported revenue dipped 1% year-on-year. The difference between the cash and reported revenue trends is a result of our deferral policy for virtual items sold within games. PC client games revenues was RMB 13.8 billion, down 2% year-on-year and smart phone games revenue was RMB 21.2 billion also down 2% year-on-year. We released one new mobile game in the quarter compared to eight games in the first quarter of 2018. Sequentially reported game revenue great 18% quarter-on-quarter due to favourable seasonality plus content updates in key titles. PC cline game revenue is up 24% quarter-on-quarter and smart phone game revenue increased 11%. Moving on to our social networks initiatives first social video, users are increasingly using Weixin and Mobile QQs in our camera functions to record samples of their daily lives which they share to friends and in their timelines. Each day 100s of millions of videos are uploaded with active users of this function posting an average of four social videos per day. Second, content video, our original long form IPs are developing their own fan bases and activities within our social networks. For example, we released Season 2 of Produce 101 for which we provided short and mini video highlight clips that our users share online amplifying the usage content engagement. Third, mini programs were enabling users to share interesting or practical information, products, and services for mini programs via WeiShi groups. For example, millions of users participate in community crew buy activities enabling merchants serving localities to effectively access their potential customers. We released our latest version of Mobile QQ in April with features for young users such as recommending new friends based on similar interests and we enabled mini programs and mini games for even QQ. For smart phone games our user base continues to grow in key genres. KanDian [ph] released substantial content update in January which increased its active users and monetization. We introduced additional seasonal skins for limited time sales. For example, the seasonal white tiger skin was among the games top five grossing products to date. Our new 3D massively multiplayer online role-playing game, Perfect World Mobile generated an enthusiastic response from players increasing our DAU within the role-playing game genre. The game has achieved healthy cash receipts but because launched it late in the first quarter and because of our deferral policy, the game only contributed marginally to first quarter reported revenue. Outside China, PUBG MOBILE exhibited strong usage trends exceeding 100 million monthly active users in February. We introduced a new Royale Pass in PUBG MOBILE in March to celebrate its first anniversary contributing to higher monetization. Looking forward, we're pursuing larger initiatives to revitalise growth. First, we are receiving a more normal pace of new game launches in coming quarters. For example we launched Peacekeeper Elite to our tactical tournament user base last week. Second, we're introducing season passes in several key games in China to stimulate user engagements and retention with opportunities to implement the increased amount of monetisation of pay rates. And third, following the success of PUBG MOBILE in the international markets we'll seek to identify other China developed games suitable for international publishing over the medium term. In PC client games, core users activity levels and monetisation improved quarter-on-quarter benefiting from favourable seasonality and content updates. For League of Legends user engagement grew as we released several skin items with grew very popular driving cash receipts to rebound both year-on-year and quarter-on-quarter. In Dungeon Fighter we raised the game level count to 95 in the general content update enhancing user engagement and the Chinese New Year promotional packages contributed to sequential growth to DnF's game users in ARPU. Shifting to online advertising, segment revenue of RMB 13.4 billion increased 25% year-on-year, which we view as a reasonable growth rate given an expanded revenue base and challenging macro environment. Revenue declined 21% sequentially, hurt by seasonality and by rescheduling of top-tier drama series out of the quarter. Media advertising revenue was RMB 3.5 billion up 5% year-on-year and down 33% quarter-on-quarter. [Indiscernible] grew substantially year-on-year and quarter-on-quarter; however, we did not add certain top tier drama series that we intended to broadcast during the first quarter reducing our video product add inventory and negatively impacting our overall media advertising revenue. Social and other advertising revenue was RMB 9.9 billion up 34% year-on-year and down 16% quarter-on-quarter. Higher add bill rates and increase ad loads across our inventory in Weixin Moments, Mini Programs and QQ KanDian contributed to the year-on-year revenue growth. Bidding intensity generally reduced in the first quarter versus the e-commerce high season of the fourth quarter pushing down our average cost per clicks quarter-on-quarter. We continue to grow our advertising business at a measured pace reflecting our commitments optimising long-term advertise returns rather than maximising short-term revenue growth. Looking at our new revenue segment FinTech and Business Services, for the first quarter segment revenue were RMB 21.8 billion up 44% year-on-year due to robust growth in commercial payment, other FinTech services such as [Indiscernible] and cloud services. Sequentially segment revenue was stable as healthy growth in commercial payments and cloud services offset the absence of interest income from custodian cash accounts since January 14 Peoples Bank of China guidelines. Within FinTech services commercial payment volume increase sharply year-on-year driven by more transactions per user. Per user transactions in turn benefited from the number of monthly active merchants accepting our payment service more than doubling year-on-year. Within business services Tencent could sustained rapid year-on-year revenue growth rate. Our enhanced and broader IaaS and PaaS offerings contributed to growth in new customers and incenting for our existing customer. And with that, I'll pass it to John to discuss the financial review.

Hello everyone. For the first quarter of 2019 total revenue was RMB 85.5 billion up 16% year-on-year or 1% quarter-on-quarter. Gross profit was RMB 39.8 billion up 7% year-on-year or 13% quarter-on-quarter. We had net other gains of RMB 11.1 billion in contrast to net other losses of RMB 2.1 billion last quarter. The change mainly is due to increases in net fair value gains and disposal gain relating to our investing companies which are both non-GAAP adjustments. During the quarter we donated RMB 700 million to Tencent Charity Fund. Operating profit was RMB 36.7 billion up 20% year-on-year or 113% quarter-on-quarter. Share loss of associates and joint ventures were RMB 3 billion compared to share profit of RMB 16million last quarter. On a non-GAAP basis, share of losses of associates and joint venture was RMB 518 million compared to share profits of RMB 1.9 billion last quarter. Income tax expense was RMB 400 billion, down 16% year-on-year as a result of lower withholding tax as well as entitlements of preferential tax treatments and benefits. This sequential increase was due to recognition of preferential tax benefit for key software enterprise in the last quarter which led to a lower base in the first quarter. The effective tax rate for the qu was 14.7%. GAAP net profit attributable to shareholders was RMB 27.2 billion up 17% year-on-year or 91% quarter-on-quarter. GAAP diluted EPS was RMB 2.844 up 17% year-on-year and 91% quarter-on-quarter. Let me walk you through the non-GAAP financial numbers. Operating profit was RMB 28.5 billion up 13% year-on-year or RMB 27% quarter-on-quarter. Operating margin was 33.3% down 1.1 percentage points year-on-year or up 6.9 percentage points quarter-on-quarter. Net profit attributable to shareholders was RMB 20.9 billion up 14% year-on-year or 6% quarter on quarter. Non-GAAP diluted EPS was RMB 2.187 up 14% year-on-year or 6% quarter-on-quarter. Net margin was 25.4% down 0.6 percentage point year-on-year or up 1.6 percentage points quarter-on-quarter. Turning to gross margin, gross margin for value-added services was 57.6% down 5.37 percentage points year-on-year or up 4.2 percentage points quarter-on-quarter. The year-on-year decrease primarily reflected a revenue mix shift to lower margin digital content services and the higher content costs as we renew and sign up more authorised music content during the year. Sequentially revenue growth from our in-house games and lower video content costs due to rescheduling of top tier genres contributed to margin improvement. Gross margin for online advertising was 41.9% up 10.7 percentage points year-on-year or 5.3 percentage points quarter-on-quarter. The year-on-year and quarter-on-quarter changes primarily reflected relatively lower video content cost as discussed earlier, as well as revenue mix shift to higher margin social and other advertising. Gross margin FinTech and Business Services was 28.5% up 2.4 percentage points year-on-year and 4 percentage points quarter-on-quarter. Margin improved due to A) group of high margin services such as commercial payments B) reduced subsidies to mom-and-pop store merchants and small merchants in certain verticals despite the loss of interest income as a result [indiscernible] money as mentioned earlier. As we move revenues relating to FinTech and Business Services to the new segment, others segment will now comprise the financial results of investment in production of and distribution of films and television programmes of third parties, copyright licensing, merchandise sales, and various other activities. These initiatives generally carry a rather low and choppy margin, but is more than the new base will have an insignificant impact on operating gross margin. On operating expenses, selling and marketing expenses were RMB 4.2 billion down 24% year-on-year or 26% quarter-on-quarter. The reduced expenses year-on-year was due to fewer games released and our cost management initiatives. Selling and marketing represented 5% of quarterly revenue compared to 6.7% last quarter. G&A expenses were RMB 11.3 billion up 20% year-on-year are partly stable quarter-on-quarter. The year-on-year increase reflected higher R&D expenses and staff costs on the G&A R&D expenses were RMB 6.5 billion RMB up 30% year-on-year or 9% quarter-on-quarter as we increased investments in people, platforms and technologies to support business expansion. As a percentage of revenue, G&A was 13.3% and R&D was 67.6% compared to G&A at 13.4% and R&D at 7% last quarter. At quarter end we have approximately 54,600 permanent employees up 18.6% year-on-year and partly stable quarter-on-quarter. Let's go to margin ratios. Gross margin was 46.6% down 3.8 percentage points year-on-year or up 5.2 percentage points quarter-on-quarter. The year-on-year decrease reflected gross margin contraction and revenue mix shift to FinTech and Business Services which carry a lower margin. Sequentially, certain gross margin ratios improved and through the gross margin. Non-GAAP operating margin was 33.3% down 1.1 percentage point year-on-year or up 6.9 percentage points quarter-on-quarter. Non-GAAP margin was 25.4% down 0.6 percentage points year-on-year or up 1.6 percentage points quarter-on-quarter. Before I close my remarks I will share several key financial metrics for the first quarter. Total CapEx was RMB 4.5 billion down 29% year-on-year or 1% quarter-on-quarter of which operating CapEx was broadly stable at RMB 3.9 billion and non-operating CapEx dropped 74% year-on-year to RMB 636 million. Free cash flow was RMB 23.9 billion up 72% year-on-year or down 20% quarter-on-quarter in line with historical trend lower operating cash flow due to payments of year-end bonuses, reduced free cash flow sequentially benefiting from healthy operating cash flow and controlled investing activities, we further reduced our net debt position but 21% quarter-on-quarter to RMB 9.6 billion. The fair value of our shareholdings is enlisted investing companies excluding subsidiaries was approximately RMB 310.7 billion or US$46.1 billion compared to RMB 238 billion or US$34.7 billion at the end of 2018. Thank you. We will now open the phone for questions.

Operator, we will take one question from each person and also [indiscernible] question now.

Yes. Our first question comes from the line of Natalie Wu from CICC. Please ask the question.

Hi, thanks for taking my question. I have a question regarding the advertising business, just wondering apart from the macro and the seasonality issue you mentioned above, did you see any competition issue coming from other parties and how should we see this sector growth in the rest of this year given that you just lifted your inventory in several key products like Moments like KanDian? Should we expect some re-exploration later this year for advertising business revenues? Thank you.

Thank you for the question Natalie. So in terms of the factors affecting advertising, as well as the macro environment, we also pointed to the impact of several top-tier drama series that we expected to broadcast in the first quarter and were not broadcast in the first quarter which had a negative impact on our media advertising revenues since those I drama series can carry substantial advertising loads. You also asked about the the competitive landscape and clearly it is a competitive market. We think we have very differentiated proposition, but within our overall advertising revenue mix there are some products which have more direct competition and some products have less direct competition. And then in terms of the growth rate, looking forward, there are a number of puts and takes. You know the macro environment will be whatever it will be. We are adding advertising inventories over time at a steady pace, but as we mentioned in the introductory remarks, our focus is really on optimising the long-term returns for our advertisers as well as sustaining a very healthy user experience rather than maximising the short-term advertising revenue results.

Thank you. Our next question comes from the line of Grace Chen from Morgan Stanley. Please ask the question. Grace Chen, your line is now open.

Thank you for taking my question. My question is about and also thank you for the additional disclosure of the FinTech and Business Service breakdown. The question is about the margin for the segment we're seeing sequential margin improvements even though there is negative impact on the absence of income generated from custodian cash balances, with intense monetization of the impacts do you expect margins will continue to increase in the following quarters? Thank you.

In terms of the FinTech Business services margin we can see that there is quite a lot of improvement during the period despite the fact that we have ended our custodian money to PBOC and there will be a lot of interest due to a few reasons. Number one is in terms of the face to face which is payment platforms, we have been before hand we have been giving out subsidies or exemptions on cash withdrawal fees to those mom-and-pops merchants, but now we have adjusted the program a little bit but offering loyalty program points rather than free withdrawal holders. As a result the margins improved quite well. Number two is in terms of some sort of worthy goals which we have giving out exemptions on rates or concession rates, take rates, we have resumed the normal take rate for those verticals such as small restaurants and things like that. And also I think in terms of the LiCaiTong, beforehand we have those – grew up this award alternative, but now it has hard up a little bit and interest generated from this account. All-in-all there has been improvement in gross margin in this period. Having said that, the margin you are looking at is just the gross margin and not necessarily mean that that's operating margin. From time to time we will look at the competitive landscape and we will tie up with promotion costs and subsidies when appropriate.

Thank you, and the next question please?

Thank you. Our next question comes from the line of Wendy Huang from Macquarie. Please ask your question?

I think you mentioned, I just wanted yet more color on the cloud [indiscernible] one term outlook, so since you did the restructure last year which particular industry for example you have mentioned the healthcare, the retail, which particular industry has moved clear progress business and also can you provide more disclosure on the - in the loan growth as well as the [indiscernible]? Thank you.

Yes, in terms of the cloud business I think it is actually progressing quite nicely and as we have talked about in our prepared remarks, number one, we have made breakthroughs in a number of different segments in particular I would say it's rather in smart retail and the financial sector as well as municipal services. So I think, that those are three examples and with smart retail we are able to really combine the strength of our cloud infrastructure and our ecosystem, which include our advertising and our mini programs, our payments, as well as our official accounts and we also add in our technology in particular the analytics and AI and we are providing very strong solutions to retailers. For example retailers can actually easily digitize their customers when their customers go to their physical stores by scanning a QR code they can pay for the services and then access the mini programs and become a digital member. And as a result of that builds strong relationship with these retailers and subsequently help them to digitize the operations and help them to move their operations into cloud and help them to engage in efficiency, improvement through data analytics. We also called out examples such as our project with the Yunnan Province in which we help them to embark on digitization of their tourism industry and also in Digital Guangdong in which we help the municipal services to be digitized and be cloud-based so that they can be serving the citizens of Guangdong in a big way, so these are clear examples. Now in terms of the actual number we don't have separate disclosure on the sub-segment, but I would say the growth trends have been pretty consistent. Now in different quarters sometimes there are lumpy revenue here and there. So the year-on-year growth rate may go up and down a little bit, but I think the growth trend has been pretty consistent for our cloud business. In terms of margin, it is still losing money on the operating basis. So that's what we can tell for now. Thanks.

Thank you and the next question please?

Our next question comes from line of John Choi from Daiwa. Please ask your question. John Choi, your line is now open.

Yes, hi. Sorry for that. Thanks for taking my question. I was wondering if I could, could we get some update about the recent launch of your new game Peacekeeper Elite, how is that trending and what kind of monetization that management is expecting? And we've also noticed that Tencent has launched quite a bit of season passes in China, how is that progressing as well? And just a housekeeping question on the content cost and the video content, in your release it says it's relatively controlled this quarter, should we be expecting that this going to be a new trend or this is more of a quarterly issue?

In terms of Peacekeeper Elite, for a new game it's actually a very successful launch and part of the reason is because we have provided pretty individualized incentive package for users which have been playing Exciting Battleground. So I think that’s quite successful and we have been able to monetize the game and there was initial spending that people who came into the game and then spend and over time it becomes sort of more normalized. Now I would say at the current time we are much more focused on making sure that we retain customers, number one we want to attract the gamers, and number two we want to retain the gamers, and then over time with more on the monetization side. So at this point in time, it is still much more focused on the user experience. The retention I would say, as we observed in the past week has been pretty good. But on the financial side I also have to note that because we have a deferral policy, so even when we are generating gross revenue for the revenue to actually come into our P&L it would take some time. Now in terms of the Battle pass [ph] James would actually talk about it.

So as you may know, our Season Pass has proven very impactful for our certain games such as Fortnite in the rest of the world in the past year and now we are starting to launch Season Pass concept in China for a number of that key games such as Honor of Kings and QQ Speed. And in terms of the impact of Season Pass first engagement what we generally see is that the players who buy the Season Pass engage with the game more because there are more activities for them to complete in order to unlock the rewards that they have sort of paid for through the Season Pass. Secondly, bank ratio typically introduction of season pass is – bank ratio because there are some users who didn’t want to pay clearly for the in-game items, but are willing to pay for the Season Pass and associate activities. And then third, if we look at cannibalization impact then when we introduce Season Pass in these games what we study what’s the impact on spending prior to Season Pass and post the Season Pass and whether that Season Pass is bringing revenue forward that we would otherwise generated later anyway and depending on the game what we see is that the cannibalization impact is either relatively small or it’s zero. So net-net the Season Passes can be quiet accretive to revenue if they are targeted correctly and to have the right content and activities inside them. So that’s on the Season Pass. And then for your question around the video content cost, there’s a number of forces at work, one force is that I believe the biggest participants in the online video and the streaming video industry have generally become more cost conscious in the last six to nine months. The second is a number of us including Tencent shifted some of our spend from licensed content to self developed content where we were in control of our destiny. But then the third, which is very important for the current period is that because there is some concerns the industry intended to put on air in the first quarter and couldn’t put on air. Therefore, while the cash cost has already being borne. The reported expenses have not yet been expensed and will be expensed as and when that content is ultimately put on air. So some part of the reduction in video content cost that you’re seeing is due to that timing impact rather than to issue a real change in underlying fundamentals.

Thank you and the next question please?

Sure, our next question comes from the line of Alicia Yap from Citigroup. Please ask the question.

Hi thank, you good evening management, thanks for taking my questions. I have questions related to this industrial internet initiative. What could be the biggest hurdle that prevents you from executing the initiatives smoothly? Will that be the corporate budget constraint now that we have more intense trade war and potential weaker Chinese economy or will that be the talent and the readiness of the corporate whether the enterprise are able to get enough software or IT talent to help them upgrade the process. And then with monetization besides audit payments, client service and also the mini program after we can charge would that be incremental solutions revenues that Tencent expect to capture down the road? And then just one housekeeping question for Peacekeeper Elite, the deferred revenues schedule, would that be a three-month, six-month, nine-month or 12 months? Thank you.

Yes that’s actually pretty good question and I think the key challenge to invest through Internet is actually the creation of the solutions that can actually help the companies in different industries to embark on this digital transformation. I think if you look at the willingness right there are more and more companies realize that at the end of the day all their consumers are actually on the Internet and they are connected to the mobile Internet, so they need to be there. They also recognized that there’s a lot of technology solutions out there which eventually can actually help them to improve their operations and make them more efficient in their operations and help them to serve their customers on the overall mobile Internet better. Now the problem is really how to make that transformation and it feels like if we create a big team of people and help a company, we can actually sort of create very compelling solutions. So in the case of, for example, when we dedicated a team of people to help the Yunnan Province, and the Guangdong Province, then it actually helps them to really upgrade their technology infrastructure, and it helped them to really provide the solutions to serve the citizens. But, and then certainly yes, in other companies when we dedicate resources to do it and there's a lot that we can do. But the problem is that it's actually not that scalable right now, every single company will need a team of 10s or even 100s of IT people to create custom made solution. So what we have been trying to do is really to provide these kinds of development capabilities as well as solutions at scale, and that would involve us creating, showcases and trying to generalize these showcases into more applicable solutions throughout the entire industry. That would also involve us working with a lot of third parties, such as ISDs and system integrators and help them to embark on or create this capability, so that they can actually create digital transformation solutions for the different industries and businesses. So, if you look at China it's actually a market which has less penetration of technology solutions, SaaS solutions. So that's sort of manufacturing of this problem. And I think, it would take some time before we create these solutions and create this awareness and capabilities in the ecosystem. But we felt that if that's done right if we look at longer term, when these solutions and resources available, companies can really benefit from this digital transformation, the value propositions are obviously there. So we felt that, over the long run these challenges will be overcome. A –Martin Lau: In relation to the PC games deferral period. For the major PC games, it normally ranges from six to nine months, whereas for games just like League of Legends, it might be up to close to you one and a half years.. Whereas for games just like, League of Legends, it might be up to close to 1.5 years. A –Jane Yip: Thank you and the next question please?

Sure, out next question comes from the line of Gregory Zhao from Barclays. Please ask a question.

Hi, management thanks for taking my question. So my question first about your FinTech business, so assuming your cloud business is still breakeven or maybe some retail. I mean, loss makings, can we see the gross margin of your FinTech business it can be counted as above 30% and also can help us understand the margin profile of each of the FinTech segment like payments, like wealth management and financial businesses. So what are your current take rate, to analyze the particularly and as a margin profile, and also if you look at the payment business alone, although we know the take rate is much lower than your U.S. I mean the peers, but given the business skills, so how shall we think about the margin profile of your payment business? Thank you.

Well, as we have discloses, right, the FinTech is actually much bigger than the business services, right. So I think that would be the way, if you try to sort of allocate too much which we don't disclose right now, that is one factor that you need to consider. Now, in terms of the FinTech businesses right now, you can see, we disclose that there are a number of different revenue streams. There is a revenue stream which is social payments, in the sense that we charge users when they withdraw fees, withdraw money into their bank account. We also charge the users when they use our payment platform to pay for credit card charges, which is essentially a pay at withdrawal as well. But that's actually really an offset against a very high banking charge that would pay to banks when consumers transfer money from their bank into our payment system. So that's, firstly, right. Secondly, is actually the commercial payments which we said, generates modest margin and as John talked about the margin that we generate on that is actually somewhat dependent on competitive pressure. Sometimes we actually have to subsidize the charges that we charge on merchants if we want to expand our footprint. And finally, it's the financial FinTech services charge that we charge on different products when we distribute these wealth management products or micro loans or insurance products, as our user base. And on that we charge a net fee, so the margin is actually quite good. So I think, that's the margin profile of this business. Now, in terms of the tick rate that we have vis-à-vis global peers, I think you're absolutely right, in the observation that's actually much lower than global peers. But at the same time, even if you look at credit card charges in China, it's actually much lower than credit card charges around the world as well. I think it's really because of the fact that the Chinese economies actually build the payment infrastructure was actually built at a later time and as a result, it's somewhat reflective of a lower cost. If you think about the credit card charges that would determine it was actually a long time ago in which you pay a much higher IT cost, you may pay much higher communication costs. But today the efficiency of the entire system is actually higher. So, to some extent, I felt that the Chinese credit card charge is actually a good benchmark of what the cost it is today. And what we are trying to provide is actually a competitive solution that allowed the extension of payment solution and penetration of the solution into a wider penetration into China. So that's why it's somewhat even lower than the credit card charge, which I think is actually quite reasonable.

Thank you very much.

And the next question, please?

Thank you. Our next question comes from the line of Karen Chan from Jefferies. Please ask the question. Kevin [indiscernible], from Jeffrey, please ask your question.

Thank you for taking my question. So just a follow on question on your new mobile game Peacekeeper Elite, how does the margin of that compared to other self developed titles? And also, is it fair to say that the payment competitive landscape in China is sort of easing off in a way that we can potentially scale back in larger user subsidy? Thank you very much.

I think that the margin on Peacekeeper Elite has many factors flowing into it and let’s see how the game monetization behaves, and then we'll have a review on the margin.

In terms of the payment side, I think that in the first quarter, it has moderated a bit. But I think, if you look at the historical trend it's actually quite fluctuating from quarter-to-quarter. You know, it really depends on the promotion activities of the different players in the market. So I would not say this is a trend that the subsidy is actually moving towards a lower end. I think, it's historical phenomena in the first quarter.

Thank you. And we will take the last three questions from the floor.

Our next question comes from the line of Binnie Wong from HSBC, please ask your question.

Hi, thank you management for taking my question. It is Binnie here. My question is basically on the online advertising and overall, in terms of on a macro level, we see the trade war tension has been heating up and there’s also macro uncertainties, how does that change our growth outlook? And especially coming to advertising, which is relatively more sensitive to macro here. The reason we ask that we have some of your competitor have been seen some challenges. And then I guess on to industry level, it seems that competition will be intense. As there’s always concerned about an oversupply of advertising inventory. How does that impact our pricing and also the timing of potentially launching our third low in Moment? Thank you.

So, thank you for the question, Binnie. So in terms of the macro impact on advertising business, then that there clearly is some flow through from both the weak economy and also the volatile stock market to after some inactivity and that’s particularly evidenced in sectors such as automobile, real estate and then Internet services, both the big established but not yet profitable O-to-O companies and also some of the Internet startups have curtailed their spending. On the other hand there are some other factors such as consumer products, games, education, which is relatively robust, but in aggregate it is a mixed picture because of the macro impact. From a competitive perspective, we feel that our advertising, our pricing is generally quite competitive already. That's not true all across the board, but in general we think that we have very keen pricing and what we done we're optimized by improving our technology driving up particular right delivering a better return to advertisers. So we really add inventory based on when we believe our platforms and technologies who is ready to ingest more inventory and to serve at the right appropriate advertising and see incremental inventory rather than based on the macro environment. So the inventory deployment plan is more talking about internal development rather than the external macro situation.

Thank you, so much.

Thank you, and the next question please?

The next question comes from the line of Eddie Leung from Bank of America. Please ask the question.

Good evening. Just a followup question on industrial Internet, how should we think about investment for these business initiatives? In the fact that how much are we thinking about tangible investment in the form of capital expenditures, sales and marketing and how much is more like probably by internal resources to focus on certain projects and it is more about the tangible spot [ph]. Could you give us some color whether we would be seeing for example the CapEx or headcount growing more significantly in this year? Thank you.

So Eddie, it is true that we have to make investments in pretty much the areas that you talk about. Firstly it is the capital expenditure and you have to investment servers particularly ahead of the demand so that we can actually serve our customers and that would be in the form of fixed investment and in addition, we need to add our headcount and that would be in the form of both sales and marketing as well as the delivery of the service that we need to add tech people, so that we can build the products and solutions for our customers. And as I alluded to in the early answer on industrial Internet, one of the key challenges is actually making sure that there are solutions available for the company's who are eagerly hoping to upgrade themselves digitally and as a result, we actually have to dedicate pretty large team of development people just to provide showcases. And at the same time, I would say that would, to some extent some resources but the resources are actually quite different people. If you think about product managers who and then engineered and developer who are actually solutions that can serve hundreds of millions of people in internet platform versus creating more enterprise like solution to customers, it's actually somewhat different. And we also leverage quite a bit about internal technology team, when somebody in our overall internet platform create machine learning algorithm, we can actually sort of provide it as a solution to our enterprise customers. So to some extent there are some synergies that we can actually leverage. And I would say from an operating perspective this business is still in investment mode, so in addition to the capital expenditure, we also generated some operating losses, so that's another area of investment and finally I would say around industrial Internet we are also seeing investment opportunities right now. So there are companies which are developing interesting solutions. They are partners who can actually help us to build our business faster and they are ecosystem partners in which they can actually develop a specific solution for industry that has strategic synergies with us and these are companies which we will invest in. So I think investments actually come into play in these areas.

Understood, thank you.

Thank you. And we will have the last question.

Our last question comes from the line of Han Joon Kim from Deutsche Bank. Please ask your question.

Great, thank you for the chance to ask a question. We disclosed that PUBG global MAU is around 100 million, so I just wanted to get a perspective on how you guys are thinking about the global relation of your business kind of revenue generation, is it contributing to your mobile game revenues now and how do we think about scaling this? Thank you.

So if you look at our game revenue, then non-China contributes high single digit percentage of global game revenue. Looking forward as we mentioned in the prepared remarks we believe that there is a convergence underway between the China game market and rest of the world, the western game markets, that's convergence in terms of the platforms on which people are playing games, mini PC console mobile, is convergence in terms of the games business model meaning that the shift to the free to play games. And it is also a convergence in terms of the genre of games that people like meaning for example first person shooter games, which is just less popular in China has now become more popular in China. So given those convergence strengths we are more closely reviewing future games to assess whether that's suitable for global publishing as opposed to just China publishing. And importantly, we have built our a degree of global publishing infrastructure for PUBG Mobile and we now have people in different geographies who are accustomed to doing game operations communicating with the App stores, communicating with the users, enhancing and localizing content for the different geography needs. And so, over the medium to longer term then we have to utilize more value-add of that infrastructure by publishing more appropriate games throughout that infrastructure globally.

Thank you, operator and we are closing the call now. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webcast will also be available soon. Thank you and see you next quarter.

Thank you. Ladies and gentlemen, that does conclude our call for today. Thank you for participating. You may all disconnect.