Good day and good evening. Thank you for standing by.

Welcome to Tencent Holdings Limited 2025 third quarter results announcement webinar. I'm Wendy Huang from Tencent IR team.

At this time, all participants are in a listen-only mode. After management's presentation, there will be a question and answer session.

For participants who dial in by phone, if you wish to ask a question, please press 5 on your telephone to raise your hand. If you are accessing from the Tencent Meeting or VooV Meeting application, please click the raise hand button at the bottom left.

Please be advised that today's webinar is being recorded. 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-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance prepared in accordance with IFRS.

For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight.

Our Chairman and CEO Pony Ma will kick off with a short overview. President Martin Lau and Chief Strategy Officer James Mitchell will provide business review.

Chief Financial Officer John Lo will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Thank you, Wendy. Good evening.

Thank you, everyone, for joining us. During the third quarter of 2025, we achieved solid revenue and earning growth, reflecting healthy trends across games, marketing services, and fintech and business services.

Our strategic investment in AI are benefiting us in business areas such as ad targeting and game engagement, as well as efficiency enhancement areas such as coding and game and video production. We are upgrading the team and architecture of our Hunyuan foundation model, whose image and 3D generation models are now industry-leading.

As Hunyuan's capabilities continue to improve, our investment in growing Yuanbao adoption and our efforts in developing agentic AI capabilities within Weixin will gain further traction. Looking at our financial numbers for the third quarter.

Total revenue was RMB 193 billion, up 15% year-on-year. Gross profit was RMB 109 billion, up 22% year-on-year.

Non-IFRS operating profit was RMB 73 billion, up 18% year-on-year. Non-IFRS net profit attributable to equity holders was RMB 71 billion, up 18% year-on-year.

Turning to our key services. For communication and social networks, combined MAU of Weixin and WeChat grew year-on-year and quarter-on-quarter to 1.4 billion.

For digital content, TME grew its paying user base and ARPU, solidifying its leadership position in music streaming. For games, Delta Force is now the top three game in China by gross receipts, while VALORANT successfully expanded from PC to mobile.

In AI, we enhanced the Hunyuan large language model's complex reasoning capabilities, especially in coding, mathematics, and science. Our Hunyuan image generation model is ranked first globally among text-to-image models by LMSYS Arena.

Our Hunyuan 3D model is the top-ranked 3D generative model on Hugging Face. I will now hand over to Martin for the business review.

Thank you, Pony. Good evening and good morning to everybody.

For the third quarter of 2025, our total revenue was up 15% year-on-year. VAS represented 50% of our total revenue, within which social networks subsegment was 17%, domestic games subsegment was 22%, and international games was 11%.

Marketing services was 19% of total revenue, and fintech and business services was 30% of total revenue. For the quarter, our gross profit was up 22% year-on-year to RMB 109 billion.

VAS gross profit increased 23% year-on-year to RMB 59 billion, representing 54% of our total gross profit. Marketing services gross profit increased 29% year-on-year to RMB 21 billion, contributing 19% of total gross profit.

Fintech and business services gross profit increased 15% year-on-year to RMB 29 billion, contributing 27% of total gross profit. Turning to business segments.

Value-added services revenue was RMB 96 billion, up 16% year-on-year. Social networks revenue was up 5% year-on-year to RMB 32 billion, driven by increased revenue from Video Accounts livestreaming service, music subscriptions, and Mini Games platform service fees.

Music subscription revenue increased 17% year-on-year, boosted by growth in ARPU and subscribers. Music subscribers grew 6% year-on-year to 126 million.

Long-form video subscription revenue decreased 3% year-on-year. ARPU was stable, while video subscribers declined 2% year-on-year to 114 million due to the delay of drama series Love's Ambition.

Following its release at the end of the quarter finally, Love's Ambition ranked among the most-viewed drama series in China year-to-date. Domestic games revenue grew by 15% year-on-year, primarily driven by Delta Force, Honor of Kings, and VALORANT.

International games revenue increased by 43% year-on-year, or 42% in constant currency, which is an unusually rapid rate due to recognizing revenue upfront on copy sales of Dying Light: The Beast and also due to the consolidation of recently acquired studios. Moving to communications and social networks.

For Mini Shops, we're systematically building a more vibrant transaction ecosystem, resulting in continued rapid growth in GMV. We enhanced Mini Shop merchandise recommendations and thus sales conversions by leveraging our foundation model capabilities to better understand users' interests based on their content consumption within Weixin.

We rolled out new features to enhance merchandise discovery in Weixin. For example, we added gifting capabilities in Weixin order and cart page leveraging Weixin's social graph.

We've also upgraded the image search feature in Weixin, which users can use to scan objects, identify them, and then shop for them in Mini Shops. We also enhanced AI features in Weixin to provide new services to users and to promote greater usage Yuanbao, with encouraging results.

An @Yuanbao feature in Video Accounts and Official Accounts comment boxes summarizes content and also encourages users to ask follow-up questions, and users like that feature a lot. We also enriched the Tencent news feed in Weixin with Yuanbao-generated content and facilitated user exploration of news-related topics via the Yuanbao app.

Now with that, I'll pass on to James.

Thank you, Martin. For domestic games, Honor of Kings' gross receipts grew year-on-year, benefiting from collaborations with the China Literature IPs Lord of the Mysteries and Fox Spirit Matchmaker.

The game achieved 139 million daily active users during its 10th anniversary event in October, which featured hero and minion outfits inspired by Bronze Age Shu kingdom artifacts. Delta Force ranked among the top three games industry-wide by gross receipts in the quarter, achieving over 30 million daily active users in September, including over 10 million daily active users on PC, driven by new season content, extensive first-anniversary events, and a global esports tournament.

We released VALORANT Mobile on August the 19th, and it's become China's most successful mobile game launch year-to-date based on its first-month DAU and gross receipts. VALORANT PC continued to grow and achieved record high DAU and gross receipts in September, benefiting from esports-themed weapon items.

The mobile launch resulted in VALORANT's combined monthly active users more than doubling from July's level to over 50 million in October. Among our international games, for Clash Royale, Supercell released a new auto battler mode, Merge Tactics, and extended its Trophy Road achievement system to 10,000 trophies, driving higher player engagement.

Monthly daily active users and gross receipts achieved all-time highs in September. Gross receipts increased more than 400% year-on-year during the third quarter.

Gross receipts of PUBG MOBILE also grew year-on-year in the third quarter, benefiting from ancient Egyptian-themed outfits, an innovative X-Suit with emote sound effects and a two-player glider, and collaborations with Transformers and Lotus cars. Our Polish subsidiary Techland released a new game in its Dying Light series called Dying Light: The Beast, which has achieved a very positive average user review score on Steam and which contributed to our international game revenue growing unusually quickly during the quarter due to the upfront revenue recognition of copy sales.

For marketing services, revenue increased 21% year-on-year to RMB 36 billion, underpinned by ad spend growth from all major advertiser categories. Impressions grew year-on-year as we enhanced engagement and increased ad load across Video Accounts, Mini Programs, and Weixin Search.

Average eCPM increased year-on-year as we upgraded our ad tech foundation model with more parameters and captured additional closed-loop marketing demand. We introduced our automated ad campaign solution, AI Marketing Plus, through which advertisers can automate targeting, bidding, and placement, as well as optimize ad creation, improving their return on marketing investment.

By inventory, Video Accounts' enriched content and transaction ecosystem and its upgraded recommendation algorithms drove stronger user engagement. Increases in DAU and time spent per user contributed to ad impression growth.

Advertisers increasingly adopted our marketing tools to drive traffic to their short videos, livestreams, and Mini Shops. For Mini Programs, increases in activations and time spent attracted ad spend from mini drama and mini games to promote their content.

For Weixin Search, increases in commercial query volume and click-through rates contributed to notable revenue growth. We improved the relevance of search ads by upgrading our large language model capabilities and optimizing sponsored results to better match user queries.

Looking at fintech and business services, segment revenue was RMB 58 billion, up 10% year-on-year. Fintech services revenue grew by a high single-digit percentage, primarily driven by commercial payment services and consumer loan services.

For commercial payment volume, the year-on-year growth rate was faster in the third quarter than in the second quarter. Online payment volume continued to grow robustly, while offline payment volume improved, particularly in the retail and transportation categories.

For consumer loan services, our nonperforming loan rates remained among the lowest in the industry and improved year-on-year, reflecting our prudent risk management practices. Turning to business services, despite supply chain constraints on sourcing GPUs, revenue grew at a teens rate year-on-year in the third quarter, benefiting from higher cloud services revenues and increased technology service fees generated from rising Mini Shops e-commerce transaction volumes.

Revenue from our cloud storage and data management products, namely Cloud Object Storage, TCHouse, and VectorDB, grew notably year-on-year due to increased demand, including from leading automotive and internet companies. For WeCom, we launched an AI summarization feature to generate project recaps and provide advice based on users' emails and conversations, enhancing project collaboration efficiency.

I'll now pass to John for the financial review.

Thank you, James. For the third quarter of 2025, total revenue was RMB 192.9 billion, up 15% year-on-year.

Gross profit was RMB 108.8 billion, up 22% year-on-year. Other gains were RMB 0.5 billion, compared with other gains of RMB 3 billion in the same period last year, mainly due to lower subsidies and tax rebates, as well as provisions made for some receivables during the quarter.

Operating profit was RMB 63.6 billion, up 19% year-on-year. Interest income was RMB 4.3 billion, up 7% year-on-year, driven by growth in cash reserves.

Finance costs were RMB 3.8 billion, up 6% year-on-year, due to forex movements and higher interest expenses. Share of profit of associates and JV was RMB 7.8 billion, compared with RMB 6 billion in the same quarter last year.

On a non-IFRS basis, share of profit was RMB 10.3 billion, up from RMB 8.5 billion in the same quarter last year, driven by associate company-specific factors, including business growth and improved operational efficiency. Income tax expense increased by 10% year-on-year to RMB 9.8 billion, mainly driven by operating profit growth.

On a non-IFRS basis, diluted EPS was RMB 7.575, up 19% year-on-year, outpacing non-IFRS net profit growth due to reduced share count after our share buybacks. Our weighted average number of shares which we use for calculating quarterly diluted EPS decreased by 1% year-on-year.

On non-IFRS financial figures, operating profit was RMB 72.6 billion, up 18% year-on-year. Net profit attributable to equity holders was RMB 70.6 billion, up 18% year-on-year.

Moving on to gross margin. Overall gross margin was 56%, up 3 percentage points year-on-year.

By segment, VAS gross margin was 61%, up 4 percentage points year-on-year, mainly driven by greater contributions from certain internally developed high-margin games. Marketing services gross margin was 57%, up 4 percentage points year-on-year, due to higher contributions from high-margin revenue streams, including Video Accounts and Weixin Search.

Fintech and business services gross margin was 50%, up 2 percentage points year-on-year, due to improved revenue mix within fintech services. On third quarter operating expenses, selling and marketing expenses were RMB 11.5 billion, up 22% year-on-year, reflecting increased promotional efforts to support the growth of our AI-native applications and games.

R&D expenses rose by 28% year-on-year to RMB 22.8 billion, primarily due to higher staff costs and increased infrastructure investment to support our AI initiatives. G&A excluding R&D expenses increased by 2% year-on-year to RMB 11.4 billion.

At quarter end, we had approximately 115,000 employees, up 6% year-on-year or 3% Q-on-Q, primarily reflecting headcount additions for both games and our technology platform, including AI-related headcount. Our third quarter non-IFRS operating margin was 38%, up 1 percentage point year-on-year.

Operating CapEx was RMB 12 billion, down 18% year-on-year, primarily due to supply chain changes. Non-operating CapEx was RMB 1 billion, down 59% year-on-year, reflecting higher base last year related to construction in progress.

Free cash flow was RMB 58.5 billion, largely stable year-on-year, as operating cash flow growth was offset by higher CapEx payments. On a quarter-on-quarter basis, free cash flow was up 36% due to higher games gross receipts.

Net cash position was RMB 102.2 billion, up 37% Q-on-Q or RMB 27.8 billion, mainly driven by free cash flow generation, partially offset by share repurchases of RMB 19.2 billion. Thank you.

Thank you, John. We are now opening the floor for questions.

If you are dialing in by phone, please press 5 to raise a question, and then press 6 to unmute yourself. If you are accessing from the Tencent Meeting or VooV Meeting application, please click the raise hand button at the bottom.

We will take one main question and up to one follow-up question each time. The first question comes from Liao Yuan from Citi.

Good evening, management. Thanks for taking my question, and congrats on the strong results.

My first question is about your gaming business. Your international game business growth rate has been accelerating for multiple quarters.

Just want to know what have you done right to achieve such good results? How should we think about the growth trend going forward?

Besides, could you share more thoughts on your international gaming strategy? For example, will you continue investing in high-quality overseas game studios or bring more self-developed games to global markets?

My second quick question is about your CapEx. In this quarter, CapEx was around RMB 13 billion, but the cash payment for CapEx was RMB 20 billion.

How should we interpret the difference between these two figures? Is there any new update to your full-year CapEx guidance?

Thank you.

Right. Why don't I start with the questions around games and the growth rate of the international game business, the strategy for the international game business?

The growth rate that we reported for the quarter for the international game business is substantially faster than the underlying trendline, and that's because during the quarter we had the benefit of consolidation of newly acquired or recently acquired game studios, as well as the benefit of the upfront revenue recognition on copy sales for the game Dying Light: The Beast. Going forward and looking into the fourth quarter, you should expect the growth rate for the international game subsegment to decelerate closer to the underlying trendline.

In terms of the strategy for our international game business, yes, to the drivers that you mentioned, we'll continue seeking to acquire game studios, we'll continue seeking to partner with overseas game studios, and we'll continue seeking to bring more games that are made in China to a global audience as well.

In terms of CapEx, the difference reflect timing gap between the accrual of server-related expenditure and cash payment, which can cause temporary mismatches between the two. In particular, the credit period for us to pay server suppliers is usually 60 days.

In terms of the CapEx for 2025, to share with you, in 2024, our total CapEx grew by 221% year-on-year, and was about 12% of the revenue. Previously, for 2025, we guided total CapEx was as a percentage of revenue to be at low teens, and the 2025 CapEx will be lower to our previous guided range, but amount will be higher than that of 2024.

Thank you. We will take the next question from Alicia Yap from Citigroup.

Hi, can you hear me okay?

Yes.

Okay. Hi, good evening.

Thanks for taking my questions, and also congrats on the solid results. First questions, can management elaborate about your comment on the upgrading Hunyuan team and also the Hunyuan infrastructure?

What should we be expecting to see from the upgraded version? Then does management have any updated view on how Yuanbao might complement the AI capabilities that you have embedded into the Weixin ecosystem the past few months?

Then second questions is on your advertising, marketing service revenue. Does that automated ad campaign solution, the AIM+, better serve the smaller advertiser?

Should we expect the solution to drive broader adoption rate for advertiser and drive higher ROI spending that support potentially accelerations of the ad revenue growth in the coming quarters? Thank you.

Yes, in terms of the Hunyuan team and the Hunyuan architecture, we are actually hiring more top-notch talent, especially in the research area, in order to complement our existing strong engineering team, and they're complementary to each other. We have also been improving the Hunyuan overall architecture across different dimensions, such as improving the hardware and software infrastructure in order to support better data preparation, to support better pretraining of the model, as well as to support reinforcement learning across different knowledge domains at scale.

These are the improvements that we are making more specifically on the Hunyuan team as well as the Hunyuan architecture. Now in terms of how Yuanbao and Weixin complement each other, I would point to the fact that Weixin has actually introduced a number of AI features based on Yuanbao's capability.

For example, in the prepared comments, we actually talk about the @Yuanbao feature in Video Accounts and Official Accounts comment box, which allows user to ask Yuanbao to summarize the content so that they can actually have very quick reference, and it actually encourage a lot of interesting additional follow-up questions and follow-up comments based on the summary of what Yuanbao provided. We are also enriched the Tencent news feed in Weixin with Yuanbao-generated content and allowed a lot of users to use that as a way to explore more related news content as well as ask questions on the news content.

We are actually adding more and planning to add more functionalities of Yuanbao into Weixin. That those functionalities actually, one, serve the Weixin users better, and two, actually help Yuanbao to gain a larger audience.

More and more of these audience find Yuanbao's capability through Weixin and eventually become a Yuanbao app user. That's sort of complementary to each other.

Alicia, in terms of the AIM+ automated ad campaign solution, we believe the automated ad campaign solution benefits all advertisers who deploy it by enabling them to automatically reach inventories as well as user profiles that are more performant than the inventories and user profiles they were manually targeting. You're right to say that small and medium-sized businesses are the first or the most eager to adopt this kind of product because they have the least legacy process to replace, and that's what we're experiencing right now.

We're also seeing bigger advertisers adopting AIM+ too, and that parallels the experience of Meta's Advantage+ automated ad solution overseas. Thank you.

Thank you, Alicia. We will take the next question from Gary Yu from Morgan Stanley.

Hi. Thank you, management, for the opportunity to ask question.

My first question is a follow-up on Yuanbao and Weixin. It appears that both the Yuanbao adoptions and also agentic AI function on Weixin hinder on foundation model capabilities.

Yet, CapEx spending remains lowered according to latest comment. Is that risk that the company is not aggressive enough, such that the potential AI application market could be lost to other companies who have either better model capabilities or more aggressive CapEx spending?

My follow-up question is regarding some of the expense items, selling and marketing and R&D. When should we expect some of the internal AI adoption to benefit on cost efficiency in order to offset some of the investment that we have talked about on Yuanbao and game advertising?

Thank you.

In terms of Yuanbao adoption and also the CapEx spending at this point in time, we actually believe that there's no insufficiency of GPUs for us at this moment. All our GPUs are actually sufficient for our internal use, and there is some limiting factor for external cloud revenue.

Now in terms of the Yuanbao capability and Hunyuan model capability, as I've talked about to Alicia's questions, we are actually making a lot of improvements in terms of our team, in terms of our talent recruitment, and in terms of our Hunyuan infrastructure and the overall process of the Hunyuan research. I would say we're actually happy with the progress we have made already.

If you wait a little bit for our next model, you can see meaningful improvement in terms of the Hunyuan capability. I believe, with the new improvements that we have been making, we'll continue to pick up pace on the Hunyuan capability.

At this point in time, we actually do not believe that there is a decisive better model in China, as everybody is actually locked in a pretty close race, and different models may be better in different use cases as well. We don't believe we are really behind.

As we continue to improve our Hunyuan capability, and we have actually been also seen quite a good ramp in terms of Yuanbao engagement. I think you see both the model capability as well as our AI products keep on improving.

Now in terms of the expenses, I think at this point of time, the G&A expense, especially the R&D, some of that is related to our AI investment, there's a natural ramp-up because we invest more in AI. If you look at the benefits of AI, at this stage, a lot of the efficiency gains are more on the revenue side and the gross profit side, you see pretty good growth in those items.

In terms of the cost item, I would say we have already done pretty big organization optimization a few years back, and the organization that we have is actually lean and efficient, and AI adoption actually allows our team to do more, instead of to reduce cost, which I think some other companies you are probably comparing with.

Thank you. We will take the next question from Alex Yao from JPMorgan.

Thank you, management, for taking my question. Congrats on a very strong quarter, and also thank you for playing very smooth and relaxing music before the call.

I will ensure I watch this TV drama after the earnings season. Two questions from my side.

First one, you mentioned that Tencent is developing agentic AI capabilities within Weixin in the prepared remark. Can you share your thoughts about how will agentic AI create value to consumers in Weixin?

I'm particularly interested in your thoughts around agentic commerce. Second one is on CapEx.

Did I hear John right that the CapEx for 2025 will be lower than the previous guidance, but higher than the '24 actual CapEx spending? If I get that right, does it reflect a change of AI chip availability, or a change of AI investment strategy, or a change of your expectation of a future token consumption?

Thank you.

On your second question, the answer is you heard it right, and it's not a reflection of our change in AI strategy, it's not a change in terms of expectation of future token consumption. It is indeed a change in terms of the AI chip availability.

Now in terms of the agentic AI capabilities, right, I think the blue sky scenario is that eventually Weixin would come up with an AI agent that actually can help the user to essentially do a lot of tasks within Weixin, leveraging AI, right, because if you look at the ecosystem of Weixin, it has a very strong communications and social ecosystem, and it has a lot of data that allows the agent to understand about the users' needs, as well as the intentions and interests. It has a very strong content ecosystem in the form of Official Accounts and Video Accounts.

It has a Mini Program ecosystem, which essentially include most of the use cases on internet. It has a commerce ecosystem, which allows people to buy stuff, and the payment ecosystem, which actually allows people to pay for it almost immediately.

That is almost a ideal assistant for users, and understands about the users' needs and can actually perform all the tasks within the ecosystem. That's the blue sky scenario.

Now, I think how do we get there, right? At this point in time, it's actually very early stage in terms of development.

Weixin is doing a number of things in parallel. For example, it's introducing Yuanbao capabilities into Weixin so that we can test out a lot of the AI features on a standalone basis within Weixin.

It's also enhancing search with AI so that we can serve the users' search and information collecting as well as analysis needs more efficiently. We are also starting to work on vertical agentic capabilities, and that's something that we're working on.

We have not launched these yet, but then very likely we will be sort of working on functionality one by one. Eventually, we can actually sort of integrate all these agentic capabilities as well as the AI features so that we can actually create this blue sky scenario of Weixin agent.

I think in terms of agentic commerce, right, I think there's the agent side and there's the commerce side. The commerce, we're actually making very good progress in terms of building up our e-commerce ecosystem, and the Mini Shop is actually growing very nicely in terms of GMV.

Over time, as it continue to grow, right, and as we work on the vertical agents, right, at some point of time, we will have agentic e-commerce as well. That's a bit later in the process.

Thank you. We will take the next question from William Packer from Exane BNP Paribas.

William, your line is open.

Hi, management. Congrats on the strong quarter, and thanks for taking my questions.

Firstly, Bloomberg have reported today that you've come to terms regarding a 15% commission with Apple within the WeChat ecosystem, below their usual 30%. While you probably prefer not to talk about the specifics of the press article, could you help us think through the implications of your improving relationship with Apple and the impact on your business, particularly mini games and domestic video games?

Then secondly, follow-up, Q3 was another very good quarter for marketing services with revenue growth accelerating. Could you help frame the growth outlook in the shorter term and for 2026 and any new structural or cyclical factors to consider?

Thank you.

In terms of Apple, right, what I could say is that, number one, we have a very good relationship with Apple, and we have sort of collaborated on a lot of different areas. We have been in discussion with Apple to make the mini game ecosystem more vibrant.

We are constructive with the progress that we've made so far. I think at some point of time, there may be an official announcement, and I think everybody should wait for that.

In terms of the advertising growth outlook, we think that it's largely a continuation of current trends. Overall, China consumer spending is subdued, but gently improving, which is a gentle tailwind for advertising spending on the demand side.

Then in terms of the supply that we provide, we'll continue deploying more AI capabilities, including the AIM+ program, automated ad campaign program that I referred to earlier. Thank you.

Thank you. We will take the next question from Charlene Liu from HSBC.

Thank you very much for the opportunity. I think a quick one on R&D spending, especially as a percentage of revenue, how do we expect that to trend in the near and medium term?

Then separately, we've seen really good GPM optimization at the segmental level. How should we think about overall impact to OPM, taking into consideration potential uptick in AI investments, depreciation costs, and what not?

Those two, I wanted to kind of see how that margin net impact will sort of play out in the medium term. Thank you so much.

Why don't I take the gross profit margin question? To clarify, while the gross margins of our various segments have been trending upward over time, that's not purely or even primarily due to sort of optimization efforts per se.

There are some subsegments, such as cloud, where we have taken a number of measures to optimize profitability, and that has flowed through into higher gross margins in the last two years. For most of our segments, the improvement in gross margins is more a function of the positive mix shift toward higher quality revenue streams that we've talked about a number of times in recent quarters.

In terms of the dynamic between gross profit margin and operating profit margin, I would not put too much weight on that quarter-to-quarter because there are costs which at an early stage in a product's development cycle, we would expense under R&D and therefore come below the gross profit line, but then as we actually make the product more widely available, commercialize the product, we would move the costs from R&D expense into cost of service and therefore above the gross profit line. I would probably focus more on revenue growth, operating profit growth, without getting too fixated on gross profit margin versus operating profit margin.

Thank you. We will take the next question from Kenneth Fong from UBS.

Kenneth, your line is open. You need to unmute yourself.

Hello?

Hello, we can hear you now. Go ahead.

Oh, hey. Congrats on a strong result, and thanks, management, for taking my questions.

I have a questions about the investment strategy. Given the strong equity market performance year-to-date globally, could management share some thoughts on our investment portfolio and strategy and direction?

Basically, how should we deploy or recycle our capital? Thank you.

Yeah. Hello, Kenneth.

As you point out, markets have been quite buoyant, both in terms of price and in terms of liquidity. We've been taking advantage of that buoyancy to more actively recycle our portfolio, primarily via some on-market sales of our investment holdings.

We've also been new investing in some emerging growth opportunities as well as our normal sort of focus areas, such as games and digital content. Overall, year-to-date, divestments have exceeded investments by over $1 billion.

We've been actively investing in some interesting AI startups, particularly in China, where we can see a sort of new wave of value creation ahead.

Thank you very much, James.

Thank you. We will take the next question from Ronald Keung from Goldman Sachs.

Ronald, your line is open. You can unmute yourself.

Ronald Keung from Goldman Sachs. Maybe we go to the next question if Ronald is not online.

We will take the next question from Robin Zhu from Bernstein.

Thank you. Hi, management.

Thanks for taking my questions. I guess two questions on gaming, please.

One is if we look at the shooter genre, there seems to be a bit of a changing of guard with Battlefield, Delta Force, Arc Raiders now doing quite well. Would be curious your thoughts on what you think is happening at the genre level.

For Delta Force specifically, what it would take, what's being planned to get the game from number two number three closer to the top two games? Is it realistic to expect that that happens at some point or not?

I guess a follow-up on an earlier question on the mini games developments. Be curious if you could try and dimension some of the relative contributions of in-app advertising versus in-app purchases on Android right now, and whether we think that this discussion going on with Apple is primarily on mini games as has been reported, or is there a broader discussion going on about, or could potentially go on about, the broader games business as a whole?

Thank you.

Yeah. Hi, Robin.

In terms of what's happening with first-person action games, then outside China, as you say, there may be a changing of the guard. Within China, I think that Delta Force has obviously been performing gratifyingly well.

VALORANT has had an exceptionally strong year, and then Peacekeeper Elite, Arena Breakout, CrossFire Mobile, pretty much all of our first-person action games have actually been on a growing DAU or growing monetization or mostly both during 2025 year-to-date. To me, that's not really a changing of the guard, it's more an expansion of the royal guard, if you will, which I think speaks to the fact that first-person action games are the leading game genre in the rest of the world.

They're not yet the leading game genre in China, but with Delta Force and VALORANT and Peacekeeper Elite and the rest, we're seeking to bring them to the position that they should enjoy. In terms of growing Delta Force further, then we're really embracing platformization with our biggest games.

Delta Force, unusually, is sort of built from day one to support platformization in terms of its modularity. With more platformization, we can also support more new modes.

Then one of the new modes that has done very well in Peacekeeper Elite and in PUBG MOBILE, and over time we'll seek to nurture in Delta Force, is user-generated content. Then we'll continue to add player versus environment content.

We'll continue to strengthen the streamer ecosystem, and generally apply the experiences that we've accumulated over 17 years of launching 40 first-person action games in China to Delta Force. Then on your second question, the stories refer to mini games, not to app-based games.

At this point, the majority of the mini game revenue is in-app purchase rather than in-app advertising, would theoretically benefit. Thank you.

Thank you.

Thank you. We will take the next question from Thomas Chong from Jefferies.

Hi, good evening. Thanks, management, for taking my question, and congratulation on a very strong set of results.

My question is on the FBS side. Given that we are emphasizing more on the consumer loan side, I just want to get some color with regard to the macro environment.

Is this the factor that we need to take into consideration about our consumer loan revenue growth? On the other hand, if we look into our cloud revenue, how should we think about the growth rate going forward?

Should we take into account the CapEx spending, or should we expect the growth may decelerate because of less CapEx? Thank you.

In terms of the FBS, particularly with respect to fintech, I think if you look at the fintech, there are three major businesses within fintech. One is our payment business, the second one is wealth management, the third one is loans, right?

In terms of macro environment, macro environment sort of has the biggest bearing on the payment business, because payment business is already very big, and it tracks pretty closely with consumption growth in China. There was a time in which consumption growth was actually in more challenging state.

I think, over time, it's gradually improving. What we see is in China, the consumption growth has been slow, and it's mainly due to the fact that a lot of consumers ramp up their savings during a period in which their balance sheet was actually sort of dragged down by the decline in property prices.

Unlike a lot of the other economic downturns around the world, which are driven by excessive credit and a lot of people sort of would go bankrupt, right, in China, it's just sort of people have resources, but then they decide to save more instead of spending more. That's why we think there is actually potential for consumption to grow if people start to feel that they're more secure now with their additional savings, and at the same time if property prices stop declining, I think people will probably begin to spend more.

I think this year we've seen stock prices have been sort of pretty strong, and that adds to the household balance sheet, and that is slightly a positive factor. At the same time, if you look at consumer loans, right, because people are not stretched from a balance sheet perspective, they're just sort of saving more, it's not actually sort of affecting consumer loans delinquency that much.

By the way, then we have been sort of very self-constrained in terms of extending loans in terms of loan amounts, and also because of the data that we have, right, I think our underwriting is actually very conservative, very data-driven, and our delinquency is among the industry-leading. That's essentially on the fintech side.

In terms of cloud business, I think we have been increasing our revenue finally sort of this year, right? In the past few years, our revenue has not grown that much, but our gross profit has grown very significantly.

This year, we're growing both the revenue as well as the gross profit, and the business is actually sort of profitable. One constraint of cloud business growth is availability of AI chips, because when AI chips are actually in short supply, we actually prioritize internal use as opposed to renting it out externally.

The other way to say is, if there is not an AI chip supply constraint, then our cloud revenue should be growing more quickly.

Thank you. We will take the next question from John Choi from Daiwa.

Thanks for taking my question. I just want to quickly follow up on the advertising business.

I think another strong quarter as you said. I think in last quarter, management mentioned that it was more due to AI implementation.

For this quarter, can you kind of elaborate a bit more how impact from AI and how that has reshaped overall conversion and pricing for our ad business? If you take that out, organically, what kind of growth could we have seen?

Also, just a quick follow-up on the payment side. I think Martin just mentioned that the overall household spending has high relation, but I think you mentioned the retail and transportation category has done well under the volume growth, especially on the grassroots side.

Have we noticed any trends that we are seeing on industry-specific levels and in terms of the transactions or the transaction size that gives us more confidence that over the past couple quarters to see the improvement trend? Thank you.

Why don't I take those? In terms of the advertising revenue, roughly half of the growth, or about 10 points, was due to higher eCPM, which we attribute primarily to AI-supported ad tech, as well as to closed-loop benefits.

Then the other half was due to increased impression volume, which reflects increased user engagement and increased ad load. In terms of the commercial payment volume trends, then there is a measured improvement.

As Martin spoke to, it's positive that China consumers have accumulated substantial savings, above-trend savings in recent years, they may be less worried by property price fluctuations and more receptive to the stock market performing well than would otherwise be the case, given this substantial pent-up spending power. We have seen that the online payment volume has continued to grow quite steadily through the weaker periods and now through this more stable period.

The offline payment volume, which had been very suppressed and under pressure for a period of time, has also started to recover. While online payment volume is growing faster than offline payment volume, the gap has been narrowing as offline payment volume has improved in categories including transportation and retail, which I suppose reflects people going out and about more often.

Thank you.

I have to stress, such improvement is still pretty nascent. We actually need to see it for a few more months in order to sort of have more confidence in saying this is the trend.

Thank you. We will take the last question from Ronald Keung from Goldman Sachs.

Thank you. Sorry for the technical.

I have a question on advertising. Want to hear how the AI Marketing Plus product, any early data points on the performance and ROI for merchants on that?

Also see you mentioned Mini Shops in one of the very early bullets in the results. Could you quantify the ad potential that I'm particularly looking for, for the increasingly vibrant Mini Shop transaction ecosystem, the ad potential there?

Then my second question, just want to ask about the analogy from our Weixin and QQ, because we have seen Facebook and Instagram kind of serving different cohorts within the company, and we have been serving those with Weixin and QQ as well. Any parallels and differences how we see Weixin as our key product, but also potentials for two kind of different products serving cohorts within domestic China?

Just an open-ended question. Thank you.

Why don't I start with the question around AIM+? When you introduce this automated ad campaign system, the biggest sort of leap for the advertisers is allowing us as the platform operator to actually manage the bidding process on their behalf.

Of course, there's a degree of internal conservatism within the bigger advertisers as to whether to entrust the platform to manage the price or not. Typically, the larger advertisers will run the automated and the manual processes in parallel for a period of time and compare the ROI to verify whether the automated process is delivering more performance or not.

We've turned on that automated bidding tool relatively recently, but the early results positive. Those advertisers who are adopting the automated solution are enjoying superior returns, and therefore, the percentage of our advertisers and the percentage of our advertising spending that is going through AIM+ is steadily increasing.

In terms of the Mini Shops, then I think you can benchmark the advertising to GMV ratios of the incumbent e-commerce marketplaces in China across to the GMV for Mini Shops, which is growing very quickly, and that will give you a sense of the advertising revenue potential from the Mini Shop operators. That's on the advertising question.

In terms of Weixin and QQ, and then sort of analogy for rest of world, for example, sort of Facebook and Instagram, I think it's a very interesting question. I think there's some fundamental differences, right, in the sense that, number one, if you look at Instagram and Facebook, they are primarily a social networks, right?

If you look at Weixin and QQ, they're both communication network and social network. If you have social network, and it's sort of content-based, then it's actually easier for you to have different groups of people dialing in and reading different content, versus it's communication, then the network effect of communication platform is actually sort of stronger.

The other thing is that China is much more a mobile-oriented versus, I think, the rest of the world, there's still a lot of people who are using PC. Sort of, if you're PC, then Facebook seems to be sort of having more PC users.

I think thirdly is, if you compare Facebook and Instagram, right, Facebook tends to sort of keep the more mature users, and Instagram sort of are more younger people. In China, it's actually different between Weixin and QQ, right?

The QQ users are primarily sort of younger in nature. I think there are some fundamental differences, but at the same time, Weixin and QQ are serving different user group and different use cases.

A lot of the younger people also have Weixin, but then they use QQ so that they would not be seeing their parents and their teachers, and sort of younger people would not be seeing their colleagues. I think, going forward, when we continue to evolve QQ as a product, right, then we should actually latch onto these features and these user needs and sort of make it more fun, make it very differentiated from Weixin.

Weixin probably sort of serve all purpose, whereas sort of QQ will serve the younger people, more active people, and we should sort of try to provide a lot of functionalities. You can meet new people, you can sort of serve more of your interest-based groups.

I think that's the way we are going to be differentiating QQ and Weixin, and make sure that they serve our users in different use cases and scenarios.

Thanks, Martin and James.

Thank you. We are now ending the webinar.

Thank you all for joining our results webinar today. 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 webinar will also soon available. Thank you, and see you next quarter.