Tencent Holdings’ (TCEHY) Q2 2017

Martin Lau

It will take a while for online video to breakeven

“there is a lot of usage, more and more people are watching online video at longer and longer time, on a daily basis. But at the same time — and at the same time, advertising revenue has been increasing, and there is also an increasing willingness from consumers to pay. So, the subscription number as well as revenue has been increasing quite rapidly. On the other hand, the flip side of this is the cost of content has been increasing, even faster. So, what we see is that over time, we believe the content will continue to increase, but the rates would probably be lower. And the subscription, as we continue to increase, would deliver higher revenue per active user. So, we will get closer to a more equilibrium between cost and revenue at some point in time. But I think unfortunately at this point in time, the net loss of the business is still increasing.”

James Mitchell

High demand for AI-as-a-service 

“In terms of providing AI-as-a-service, I think this is definitely a one direction that we are going into in our cloud business already and we are seeing a lot of demand on that. And we have been able to sign up a lot of customers because of our ability to offer them AI capability. And that’s just the beginning. Over time, I think we will do much more on that.”

People are discoevring games on more communal venues

“In terms of games and targeting, if you look at games playing globally, particularly on the personal computer, it’s moved from being media driven to being increasingly community driven. 20 years ago, people discovered new games on the PC in the U.S. and Europe through computer magazines; now, they’re discovering them through reddit, through Twitch, through those kinds of more communal venues. And some of the same trends are underway in China. And what we’re trying to do is working with the game developers to make sure that we target their games to the users who are likely to be most receptive.”

Tencent Holdings’ (TCEHY) Q1 2017

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.”