Tencent Holdings’ (TCEHY) Q1 2017

posted in: Earnings Call, Notes | 0

Martin Lau – President

A good quarter for gaming

“looking at PC Client games the revenue was up 24% year-on-year and quarter-on-quarter…we view the strong performance of PC games in the first quarter as a pleasant surprise rather than a new trend and expect performance to return to prior trends later. We believe the strong first quarter performance illustrated that the popular content can indeed energize PC game activity in revenue if they are launched right.”

James Mitchell – CSO

Mobile accounts for 85% of ad revenues

“Online advertising segment revenue was RMB6.9 billion, up 47% year-on-year and down 17% quarter-on-quarter. Mobile contributed over 85% for advertising revenue.”

John Lo – CFO

On margins

“In terms of the margin, it varies by digital subscription products but in general the incremental margin on a digital subscription is lower than the incremental margin on a virtual privilege because the virtual privilege is generally piggybacking on our social networks and carry low incremental expense versus the digital content subscriptions carry incremental cost related to movie studio output deals to record label output deals and so forth.”

Seasonality impacted ad revenues

“For the first quarter, for the first time our digital subscription video revenue exceeded our video advertising revenue that’s partly a seasonal factor because the first quarter is seasonally weak for advertising and seasonally strong for consumer digital spend, so we wouldn’t necessary expect that to be the case in subsequent quarters….the video product for us is very much an investment mode, it is a heavy loss making and we expect to remain loss making for the foreseeable future but it’s gratifying that while we are incurring those losses, we are also seeing growth in traffic, growth some extent in video advertising revenues, and then substantial growth in video subscription revenues.”