**Tencent Q2 Revenue: ¥161.12 billion, +8% YoY, +1% QoQ, Slightly Miss Market Expectation of ¥161.35 billion**

**Adjusted Net Profit: ¥57.31 billion, +53% YoY, +14% QoQ, Significantly Beating the Expected ¥48.67 billion**

**Key Points from Tencent's Conference Call:**

**Value-added Services:** DNF Mobile and Mini Program Games Stand Out; Weak Monetization but Sustainable Growth Expected

Tencent's games performed impressively in Q2. Domestic game revenue increased by 9%, driven mainly by the revenue growth of "Valorant" and the official launch of DNF Mobile, which quickly became a hit. International game revenue also grew by 9%, thanks to strong performance of "PUBG MOBILE" and rising popularity of Supercell games.

"Valorant" has become the largest PC game in China and is planning to be ported to mobile.

The introduction of AI into games (e.g., high-level AI opponents in "Honor of Kings") has enhanced player enjoyment. As AI continues to mature, the boundary between PVP and PVE will blur, allowing the company to create more high-quality AAA titles.

Tencent's games are characterized by high daily active users, long user engagement, and relatively low per-unit time spending. In the current macroeconomic environment, this is quite resilient. Given the current low per-unit time spending, there is still room for commercialization.

We are very optimistic about the sustainable operation of DNF Mobile. First, the popularity of DNF on PC is very high; second, the player retention rate for DNF Mobile has been very high since its launch over 60 days ago. The 30-day user retention rate post-launch is a crucial indicator of a game’s longevity. For evergreen games like "League of Legends," "Honor of Kings," "Game for Peace," and "Teamfight Tactics," the most important metric in the first 30 days is not download numbers or revenue, but very high user retention.

DNF Mobile is a narrative-based game rather than system-based, and its monthly active player count is expected to be lower than the popular "Honor of Kings" and "Game for Peace," but its average revenue per user (ARPU) will be significantly higher. Compared to other narrative games, DNF Mobile will be an undisputed leader, and its monetization is lower than other narrative games, with a stronger consumer spending capacity, allowing for a sustainable profit model.

Additionally, we have prepared a rich content pipeline for DNF Mobile, which will be gradually released over the next two to three years.

Apart from self-developed games, the increase in mini-program platform service fees is also a highlight, especially considering even Apple is getting involved in the revenue share.

**Content Revenue:** Growth in Music and Long-form Video Memberships; Partly Offset by Declines in Music and Game Live Streaming Revenue

**Online Advertising:** AI-enhanced Video Account Usage Increased, More Precise Advertising; Currently No Profit from iOS Mini Program In-App Purchases; Ongoing Negotiations with Apple

Revenue from WeChat Video Accounts and long-form video saw significant growth, driving Tencent's Q2 advertising revenue, though this was partially offset by reduced ad budgets from internet companies.

In the AI era, Tencent is using artificial intelligence to precisely recommend content and ads that users are interested in. The increased usage time of video accounts can be attributed to AI.

**Apple’s Request to Block Mini Program Payment Loopholes:** Tencent Management's Perspective on Channel Commissions

Tencent’s management stated that the 30%-50% commission from Apple and Android channels is a heavy burden on the gaming industry. However, we believe that over time, whether driven by regulatory pressure or commercial needs, the commission rates for app stores will gradually decline.

For DNF Mobile, we believe its IP has strong appeal and does not need channel promotion. Even without promotion from Android channels, we are very satisfied with its performance and saved a significant amount in promotion costs. However, games with lower recognition still need to rely on channel promotion to build a loyal fan base.

Regarding Apple’s demand to block mini program payments, we are currently not making profits from iOS mini program in-app purchases, but we hope to monetize through this channel in the future, benefiting Tencent, Apple, game developers, and players (the first three can gain incremental revenue, and players can enjoy higher-quality games). We are negotiating with Apple and will inform you of any progress. If there is no progress, the status quo will remain.

**Enterprise Services:** Slower Growth Due to Weak Consumer Spending; Cloud Business and Video Accounts are Highlights

This quarter, the growth of enterprise services slowed due to the weak consumer environment, with users tightening their wallets and average spending amounts decreasing (which had been steadily increasing). However, transaction numbers continued to rise. Considering Tencent’s stable market share in the payment industry, revenue in this segment is expected to improve once consumer spending rebounds.

Increased loan risk control under macro pressures led to a decline in consumer loan service revenue, while increased consumer savings drove double-digit (over 10%) growth in wealth management services revenue.

Enterprise service revenue growth reached double digits, benefiting from cloud business, commercialization of enterprise WeChat (increased willingness to use advanced paid features), and growth in video account merchant service fees.

**AI & Cloud Business Progress:** Rapid Growth in Demand for Tencent Cloud GPUs Driven by AI Needs; CPUs Gradually Being Replaced

Tencent launched the "Yuanbao" large model in late May, officially entering the model war. We are currently working to improve this model and will incorporate it into various parts of Tencent’s ecosystem when the timing is right.

An analyst inquired about the company's view on cloud business.

The management stated that US cloud service providers renting GPUs to businesses is already a significant business, and a similar trend exists in China, though on a much smaller scale. This is because China lacks capital-rich startups capable of developing large language models (e.g., OpenAI is valued at $80 billion, while China’s leading model, Moon’s Dark Side, is valued at only $2.5 billion). Additionally, the current economic environment poses challenges.

Nonetheless, we are seeing very rapid growth in the demand for Tencent Cloud GPUs driven by customers' AI needs, partly due to the low base.

It is noteworthy that some of the GPU rental demand is incremental for AI, while some replaces previous CPU rental demand. Our GPU business is growing rapidly, while CPU business remains stable, as incremental demand is for GPUs rather than CPUs.