此外，《火影忍者》手游本季度的平均日活超过1000万，实现强劲的同比增长；本季度总收入和总流水最高的PC游戏《marketing Solutions》；《荒野乱斗》本季度的流水实现了同比数倍增长Tencent pointed out that the proportion of AI-related revenue in the company is around 10%, lower than that of cloud AI revenue of usa cloud vendors, due to the immature AI market in china. In terms of applications, AI technology has enhanced the efficiency of content recommendation and targeted advertising, increasing user engagement time and ad response rate, directly boosting revenue. Tencent is integrating AI into more products and services, and expects to see more practical applications in the coming quarters.
On Wednesday, November 13, Tencent Holdings announced its third-quarter financial report for 2024, showing Tencent's Q3 revenue has grown for eight consecutive quarters, with net income increasing significantly by 47% year-on-year. Both advertising and gaming businesses performed strongly, with a significant improvement in gross profit margin for cloud computing services.
During the evening conference call, Tencent stated that its flagship game, Constant Tree, achieved healthy growth in total revenue and total income. Specifically, the revenue of Honor of Kings increased year-on-year in the third quarter, while Peace Elite continued its recent strong rebound trend, achieving double-digit year-on-year growth in total income for the quarter.
In addition, the average daily active users of the mobile game "Naruto" exceeded 10 million this quarter, achieving strong year-on-year growth; the PC game "Marketing Solutions" had the highest total revenue and total income this quarter; and the revenue of "PUBG Mobile" saw a multiple-fold increase year-on-year this quarter.
Tencent's Chairman and CEO, Ma Huateng, stated that the gaming business of the company achieved strong revenue growth this quarter, mainly benefiting from the continuous strong performance of the Constant Tree game, while also seeing many new games with the potential to become flagship games.
Regarding advertising marketing, Tencent mentioned that by providing more precise advertising placement marketing services for the video platform, its revenue in this quarter increased by over 60% year-on-year. In the future, they hope to create more incremental loops through the combination of the video platform and WeChat Search, and to improve the relevance of search results using AI large models.
Ma Huateng stated that the company is upgrading its overall e-commerce strategy around WeChat Mini Program, aiming to create a unified and trusted transaction experience based on the WeChat ecosystem.
Regarding cloud business, Tencent mentioned that current cloud revenue is mainly AI-related, achieving rapid year-on-year growth, and now represents a very large portion of infrastructure service revenue.
In the subsequent Q&A session, Tencent also stated that this year's buyback amount will exceed the target of over 100 billion Hong Kong dollars, and next year's buyback plan will be disclosed in the year-end earnings report.
The following is a transcript of the analyst Q&A session:
Q1: What is the current overall situation of Tencent games? How does the management view the impact and future development of the gaming industry? What are the key events that will affect the industry? Which popular games will have a significant impact on future strategies?
In recent months, some Chinese games have achieved significant success globally, and this trend is becoming more apparent. For example, "PUBG Mobile" has demonstrated strong capabilities and continued success, which we believe is a structural trend. These successes are attributed to Chinese studios quickly adopting new trends in the vast domestic market, such as the virtual goods business model and mobile platforms. Additionally, China's large engineering teams are able to dedicate a substantial amount of manpower to game development and operations, and are willing to adopt new tools like Unreal Engine 5.
This year, we have witnessed many new trends, such as "Black Myth: Wukong" utilizing advanced technologies like Unreal Engine 5. Whether in the domestic or international markets, we believe the true scarce resources are games that can become timeless classics. We will continue to release new games and analyze their potential to become timeless classics. For popular games, we will make appropriate investments to help them grow into timeless classic games. For potential games, we need to observe them closely, extract insights, and transform them into strategies.
Our different game studios have demonstrated their respective strengths in their work, and we will further enhance these strengths based on gameplay and the WeChat platform. We value content and story-driven games, such as "Black Myth: Wukong," which have been very successful.
Our strategy is to leverage the strengths of different studios, invest in and collaborate with external studios, and focus on their areas of expertise.
Q2. What is the positioning of e-commerce? How do you view the 2 trillion yuan e-commerce GMV facilitated by mini-programs?
We hope to build a more powerful e-commerce foundation through the WeChat ecosystem, especially in the WeChat Mini Store, to create a unified and trustworthy shopping experience, the key lies in indexing and standardization. We will ensure that product information and merchant data are standardized, verified, and quality-controlled. This will improve the consumer shopping experience, enhance product quality, optimize logistics tracking, return and exchange processes, etc.
We will collect consumer purchases, merchant information, and preference data, which is crucial for merchants. We will provide better traffic and transaction support for merchants, both of which are very important.
WeChat Mini Store will be fully integrated into the WeChat ecosystem, enjoying traffic support from various social channels such as one-on-one chats, group chats, Moments, as well as Official Accounts, WeChat Search, Video Accounts, etc. By analyzing consumer buying behavior, we can provide more targeted traffic and transaction support for merchants, driving the healthy development of the e-commerce ecosystem.
We are confident in the long-term potential of the e-commerce ecosystem, especially in the field of mini programs. There is already a large amount of GMV related to transactions and services, much of which is unrelated to physical goods. Even physical products show good data performance.
Merchants are selling products to customers through the WeChat ecosystem, especially to existing customer groups. Many merchants guide existing customers to complete transactions within the WeChat ecosystem. WeChat Mini Store shows great potential, as merchants can transfer their interactions with customers from other systems to mini-programs. While initially lacking new customer acquisition methods, merchants have the opportunity to gain new customers by showcasing products to nearby customers through WeChat Mini Store.
In addition, Video Accounts in the WeChat ecosystem serve as a standardized short video platform, providing stronger traffic support, especially after integration with communication and social functions, enabling merchants to gain broader exposure. Video Accounts have shown significant traffic growth, and we are committed to providing merchants with a standardized, trustworthy educational environment to further boost transaction volume.
Q3. Regarding WeChat Search, Tencent's commercial query volume and click-through rate have significantly increased. Can you share more details? In which industries do advertisers focus more on commercial keywords to drive traffic and conversion? Apart from WeChat Search, do advertisers have other search-related entry points? Is it possible to use generative AI to perform checkbox operations?
In the field of WeChat Search, we have observed advertisers in industries such as financial services, internet services, gaming, local automotive services, and luxury goods actively purchasing keywords. We plan to add search functionality to Video Accounts and Mini Programs, and utilize responsive triggers to enhance user experience. For WeChat Mini Store, we will provide more standardized SKUs and explore advertising opportunities for advertisers. We consider interacting with consumers through standardized product cards, triggering commercial activities, and utilizing search technology to optimize the information flow. We will continue to explore adding commercial search entry points in different regions. In terms of monetization, we should maintain a steady pace and not be eager for immediate results.
Despite the good performance of user engagement and retention rate in the 'Delta Operation', the iOS ranking and monetization seem unsatisfactory. Is there any consideration for improving the monetization of this game, or are there other factors to consider? Regarding payment revenue, there has been a slight decrease this quarter, while retail spending in China in the third quarter of 2024 showed low single-digit growth. What are the reasons for the year-on-year decline in payment revenue? Are there certain consumer categories or verticals performing particularly poorly?
For the PVP multiplayer game 'Delta Operation', we initially focus more on user engagement, with monetization gradually being considered over time. Currently, the monetization performance of this game is better than our other large-scale PVP multiplayer games in the early stages, although iOS data may not fully reflect this, as the game is also launched on PC and mobile platforms, with the main revenue coming from the PC side. Overall, we are very satisfied with the monetization and user satisfaction of this game.
There are various factors affecting the changes in payment revenue and Chinese retail spending. Although we do not have a payment franchise, we are satisfied with the current payment revenue results. Regarding the decline in payment revenue, we have eliminated low-quality or even loss-making transactions and focused on the number of small daily transactions rather than the total transaction volume. The number of transactions has increased by about 10% year-on-year, indicating that our payment business remains strong.
Regarding the international market games, Tencent mentioned that some games have increased retention rates, leading to an extended deferred revenue cycle. Could you provide further analysis? Does this refer to large flagship games with excellent performance in the international market?
Large flagship games in the international market have a longer income deferral cycle due to high retention rates, typically with 6 to 9 months in the domestic market and slightly longer in the international market, but not significantly longer. We are optimistic about the future of international game revenue and expect the accumulated deferred revenue from the past few quarters to gradually show, bringing more growth potential.
Given the strong profit margin growth over the past two years, what is the medium to long-term profit margin target? Are there any plans for stock buybacks in 2025? Considering the good performance of the company in 2024, are you considering more shareholder returns this year?
Regarding profit targets, we do not have specific information to share, but we see some positive trends. Despite challenges in the macroeconomic environment, our revenue growth momentum remains strong, and we hope this momentum can be sustained. We focus on high-quality revenue growth and hope these factors can continue for a longer period.
We will disclose our thoughts on stock buybacks for next year in the 2024 year-end earnings announcement. At the moment, we cannot disclose specific information. Our stock buyback target set for this year is 100 billion, with slightly over 90 billion already completed. We believe it will exceed this target for the entire year. Looking ahead to next year, we will consider potential factors affecting shareholder returns and are willing to share more value with shareholders.
Regarding stock distribution, it is not the time to disclose related financial data yet, we need to wait further. We will return cash to shareholders and provide shareholder returns through various measures, as our operations have generated considerable cash flow.
In terms of capital expenditures, we are doing well in our gradual capital expenditure plan. Given the rapid development of cloud computing service and AI, our management pace of capital expenditures is very reasonable. For the AI business, we expect to generate significant profits next year, and will disclose dividend and stock buyback plans at that time.free cash flow11. At that time, the dividend and share buyback plans will be disclosed.
Q7. Can you provide more details on the integration of AI in different businesses and GPU deployments? How will AI contribute to revenue in the future? Can you further elaborate on overall management strategies? Particularly, how to achieve better monetization through AI and other technological tools?
AI technology currently brings significant profits in content recommendations and targeted advertising, increasing user engagement and advertising response rates, directly boosting revenue. Video platforms also benefit from AI content recommendations.
AI-related revenue accounts for about 10%, but compared to US cloud providers, AI revenue is still limited. The main reason is that China's AI market has not fully developed yet, with few AI startups purchasing large amounts of computational power, limiting the scale of AI revenue growth.
AI has significant value in promoting our products and services, and we are integrating AI into the entire production process to enhance efficiency and user experience. With AI being integrated into more products and services, we expect to see more practical application cases in the next few quarters. We will continue to iterate and update AI technology.
Q8. We know that in September, there are more growth-promoting policies domestically, against the backdrop of a complex global political environment, how should Tencent position its business and formulate strategies? During the November 11 shopping festival, how did the marketing services perform? What new advertising trends do these data reveal? Tencent just mentioned that the average order value of each payment transaction has decreased, what does this mean? How will consumer trends develop?
The government's stimulus policies are indeed beneficial to the economy, and we believe that these policy directions are constructive and timely, therefore Tencent holds a positive attitude towards the long-term economic outlook. Although the specific timing of economic growth remains uncertain, we are taking necessary measures to adapt to the current environment. We have been doing the right things and will continue to develop based on our existing strategy.
We understand the importance of regulatory policies and are committed to proactively adapting to regulatory requirements, actively adjusting products, and engaging in effective communication with regulatory agencies to avoid passive responses. In the global market, we continuously optimize products, strive to create more value for users, and focus on providing meaningful products and services to achieve win-win results with users, customers, and partners.
We are committed to deepening a culture of excellence and cost-effectiveness within the company. We will adhere to self-discipline, avoid wasting resources and energy on non-core matters, ensure a focus on valuable products and services, to achieve high-quality development.
Despite the cyclical fluctuations of the macro economy that we cannot fully control, we focus on doing what we can control. On the regulatory front, we continue to monitor and actively understand the intentions of regulatory authorities to ensure that our business complies with regulations.
Regarding the macroeconomic environment, after the policy announcements in September and October, there was a positive change in transaction volume. Although the year-on-year growth rate of transaction volume in the third quarter of 2024 fluctuates, the overall trend has increased in October, particularly in terms of educational value. We believe that while economic recovery will take time, in the long run, the economy will accelerate its recovery. We are optimistic about the Chinese government's determination to boost the economy and the positive structural factors in the Chinese economy, such as a strong engineering talent pool and professional ethics, and companies benefiting from a large supply chain. Overall, we maintain an optimistic outlook on the long-term prospects of the macroeconomy.
Q9. What are the short-term development trends in the e-commerce sector for the next few quarters? Can you share specific e-commerce development plans? What are your priority development areas? What are the specific plans for e-commerce expansion in the short term, especially in live e-commerce and video e-commerce? Considering the slowing e-commerce growth and intense competition in traditional e-commerce, what comprehensive impact do these factors have on e-commerce development? Can you share the latest developments in cooperation with Taobao in the near future? How will the future cooperation with Taobao develop? What is the potential of such cooperation?
Regarding WeChat Mini Programs, we will continue to optimize infrastructure, promote indexing and standardization within the WeChat ecosystem. We will not seek quick success, but steadily improve functions step by step. At the same time, we value consumer experience and merchant services, providing more tools for merchants to enhance the value of WeChat Mini Programs and effectively guide traffic.
Based on the attributes of social and communication businesses, we will build more features, functionalities, and products, considering them as essential public utilities. We do not pursue short-term e-commerce management but focus on long-term product features and application development. Despite possible short-term fluctuations, we are more concerned about long-term development.
Regarding the cooperation with Taobao, in October, we have enabled the use of WeChat Pay on Taobao, which is beneficial for both parties, increasing users' payment options. We are satisfied with the current results of our cooperation and believe it will bring more value to the e-commerce industry. With the continuous growth of the WeChat ecosystem, we believe that the cooperation with platforms like Taobao will unleash more potential.
Q10. The gaming business is currently developing well, and we hope to further expand in the future, especially in the Southeast Asia and China markets. What are the development strategies in these regions? In the global market, especially in the shooting game sector, games like Peace Elite have shown outstanding performance. Will players increasingly shift towards shooting games? How to meet player preferences in a larger local market? How will different types and styles of games be combined?
Regarding first-person shooting games, we see that young Chinese players have a particular preference for these games, especially in the age group of 18 to 25, while older age groups may not like them as much. Newly launched games like 'Delta Force' have strong appeal to this group, indicating a structural trend.
In the Western gaming market, first-person action games dominate. Over time, this trend may also become mainstream in the Chinese local market, which is positive for us. We hope to achieve more success in this type of game, and we have already made significant progress in attracting players of specific age groups.
'Delta Force' will not cannibalize existing games. Just like different types of TV series attract different audiences, different types of games can coexist, attracting different players. We look forward to further innovation in gameplay, including games based on heroes, professions, tactics, and melee combat, which appeal to different niche markets of players. The success of games like Peace Elite shows that the same category of games can attract a large number of players without eroding market share.
Q11. In the fintech field, the wealth management business is growing. What are the strategies for wealth management and loans?
Recent growth in wealth management is mainly driven by money market funds and has cyclical characteristics. We hope to see structural changes during the cycle, with the expectation that users will not only purchase money market funds but also invest in long-term stock funds and ETFs over time. We are building a product platform to provide richer wealth management options, allowing users to easily switch funds to purchase other financial products.
In terms of lending, we have become more cautious, strictly controlling credit risks. We adopt a conservative strategy, selectively lend, and actively control the loan size. Considering the macroeconomic cycle, we will develop the loan business more cautiously.
In terms of investments, we are actively considering which assets to divest. In the event of abnormal market conditions, we will adjust our investments, withdraw funds when necessary, and divest. We will carefully analyze and decide which investments should be divested to recover capital, whether for new investments, share buybacks, or funding future activities.
Despite our share buybacks and dividend distributions, the operational cash flow situation has still improved this year.
Q12. Can you share specific details and reasons for the internal adjustments in the gaming business? How do these adjustments impact the overall trend of the gaming market and the current gaming business of the company?
We have made adjustments to our gaming business to support its continuous development. Adjustments to the teams of "Honor of Kings" and "Peacekeeper Elite" have yielded positive results. We believe that many games have the potential to become long-term successful "evergreen" games, especially when they have a large user base.
The success of games depends not only on the games themselves but also on key factors such as teams, development processes, operation, and community management. Through active team adjustments, we hope to make more games loved by players and become "evergreen" games.
Game innovation is crucial to us, and our adjustments aim to drive innovation and achieve a sustainable growth model. We will focus on new games with the potential to become "evergreen" games and strive to create more value, exceeding player expectations.
Our game strategy is to create premium games, not to pursue quantity. We will clearly position each game in terms of type, gameplay, props, etc., to maintain Tencent's leading position in the gaming market. We believe games like "Delta Force" have the potential to be long-term successful games and hope more games can be like them.
Tencent's performance in the advertising business in this quarter is impressive, especially the development of Video Number. How do you view the prospects of combining advertising with Video Number? In addition, the integration of Video Number and e-commerce platforms like Taobao seems to provide more assistance to merchants. Does this mean that the e-commerce sector will help Tencent unleash the advertising potential of Video Number? What led to the collaboration between WeChat and Taobao? How should we view the possibility of Tencent forming such collaborations with other internet companies?
Macro environment is crucial for driving factors in the advertising business in 2025, affecting consumer confidence and the consumer market, which may in turn impact consumer spending.
Our advertising technology, including GPU, neural networks, and AI, has significantly improved advertising effectiveness, such as increasing click-through rates. We have integrated it into content platforms like Video Number and WeChat's 'Search' feature, and in the third quarter of 2024, we moderately increased the ad loading rate of Video Number, contributing 60% to business growth.
Although our ad loading rate is still below the industry average (around 3%-4%, while the industry average is between 10% and 20%), we see room for improvement. We plan to adjust the ad loading rate based on e-commerce demands and the development trend of Video Number to create a closed-loop advertising business.
We expect that based on continuous improvements in advertising technology, we will surpass the development level of the advertising market in the coming years. The growth of WeChat's 'Search' feature will also positively impact Video Number's ad loading rate, maintaining market share growth. WeChat Mini Program is crucial for the e-commerce ecosystem, and we will further study its value in the e-commerce sector.
The collaboration with Taobao is clearly advantageous for users, providing more convenient services. For us, such collaborations also help increase the use cases of payment services, improve the exposure of payment services, and bring higher user conversion rates to Taobao. To achieve this collaboration, we have conducted extensive design and signed agreements to protect the user experience, avoid spam emails. Additionally, this collaboration can stimulate consumer spending. We need thorough design and ensure that partners agree to the corresponding arrangements, meet regulatory requirements, and compliance is crucial.
We ensure that all merchants go through appropriate onboarding processes to ensure compliance. Collaborative efforts with partners are key to realizing the full value of collaborations. In the past, we have completed many complex designs and agreements, and now we must ensure that these measures are effectively implemented. Faced with a new environment, we will be more open, achieving more value through collaboration.
