#1Tencent 腾讯 2022 Second Quarter Results Presentation Aug 17, 2022#2Cautionary Note This presentation may contain forward-looking statements relating to the forecasts, targets, outlook, estimates of financial performance, opportunities, challenges, business developments, business plans and growth strategies of Tencent Holdings Limited (the "Company" or "Tencent") and its group companies. These forward-looking statements are based on information currently available to Tencent and are stated here on the basis of the outlook at the time that this presentation was produced. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. The forward-looking statements are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. The forward-looking statements may prove to be incorrect and may not be realised in the future. Underlying the forward-looking statements are a large number of risks and uncertainties. Therefore you should not rely on any of these forward-looking statements. Please see our various other public disclosure documents for a detailed discussion of those risks and uncertainties. This presentation also contains some unaudited non-IFRS financial measures which should be considered in addition to, but not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. In addition, these non-IFRS financial measures may be defined differently from similar terms used by other companies. The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary information to assess the performance of the Company's core operations by excluding certain non-cash items and certain impact of acquisitions. For further explanation of our non-IFRS measures and reconciliations between our IFRS and non-IFRS results, please refer to our earnings announcement. In addition, information relating to other companies and the market in general presented in these materials has been obtained from publicly available information and other sources. The accuracy and appropriateness of that information has not been verified by Tencent and cannot be guaranteed. All materials contained within this presentation are protected by copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior, express written consent of Tencent. The reporting currency of the company is Renminbi. For the purpose of this presentation, all figures quoted in US dollars are based on the exchange rate of US$1 to RMB6.7114 for 2Q2022. 2#31. Overview 2. Strategy Review 3. Business Review 4. Financial Review 5. Q&A#4Financial Highlights In billion RMB Total Revenue Value Added Services 2Q2022 2Q2021 YOY 1Q2022 QoQ 134.0 138.3 -3% 135.5 -1.1% 71.7 72.0 -0.5% 72.7 -1.5% Social Networks 29.2 29.0 +0.6% 29.1 +0.2% Domestic Games 31.8 32.1 -1.1% 33.0 -4% International Games 10.7 10.9 -1.4% 10.6 +1.3% Online Advertising 18.6 22.8 -18% 18.0 +4% Media 2.5 3.3 -25% 2.3 +8% Social and Others 16.1 19.5 -17% 15.7 +3% FinTech and Business Services 42.2 41.9 +0.8% 42.8 -1.3% Others 1.5 1.6 -1.1% 2.0 -24% Gross Profit 57.9 62.7 -8% 57.1 +1.4% Non-IFRS Operating Profit Operating Margin Net Profit Attributable to Equity Holders 36.7 42.8 -14% 36.5 +0.4% 27.4% 31.0% -3.6ppt 27.0% +0.4ppt 28.1 34.0 -17% 25.5 +10% Starting 3Q21, we disclose revenues from Domestic Games and International Games as new sub-segments under VAS, reflecting the increasing scale of our international games business. For the purpose of preparing financial and operating information, Domestic Games refers to our games business in the PRC excluding the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan. 4#5Key Services Update Games #1 by users and revenue in China across PC and mobile #1 globally by revenue Weixin & WeChat • #1 mobile community • MAU at 1,299m Games Digital Content QQ Communication • QQ mobile devices MAU at 569m FinTech & Social Mobile Browser • #1 by MAU Mobile Security • #2 by MAU Utilities Cloud Long-Form Video • #1 by subscriptions News #1 news services by MAU Music • #1 music services provider Literature . #1 online content library and publisher Mobile Payment . #1 by MAU & DAU Public Cloud • #2 service provider by revenue All rankings above refer to China market, unless otherwise stated. Ranking for public cloud is based on laaS and PaaS revenue (source: IDC). Company data as of Jun 30, 2022 5 LO#61. Overview 2. Strategy Review 3. Business Review 4. Financial Review 5. Q&A#7Efficiency initiatives reduced costs, stabilising earnings • Closed down certain non-core businesses – online education, eCommerce, game live streaming • Rationalised underperforming businesses - loss-making digital content services, sub-scale social media products • Tightened control on marketing programs - reduced selling and marketing expenses by 21% YoY • Migrated all domestic in-house services to Tencent Cloud - enhanced cost efficiency • Optimised workforce and controlled staff costs - total headcount down by ~5,000 QoQ COPS in billion RMB 86.4 78.4 76.1 S&M in billion RMB 11.6 G&A in billion RMB 26.7 26.2 24.4 8.1 7.9 Non-IFRS Operating Profit in billion RMB 36.5 36.7 33.2 4Q21 1Q22 2Q22 4Q21 1Q22 2Q22 4Q21 1Q22 2Q22 4Q21 1Q22 2Q22 7#8Additional efficiency initiatives to support earnings recovery, even in complex macro environment & • Cloud Scaling back loss-making activities to improve margins Sharpening our focus on internally developed products, particularly PaaS and SaaS, to drive quality of growth • • Payment Managing funding channels to lower unit. transaction costs Focusing our development and operational efforts on higher value services . Long-form video • More discipline in content spending and • strong focus on ROI Harmonising our subscription pricing to optimise ARPUS Video Accounts Reducing content procurement as the ecosystem gains critical mass • Optimising bandwidth and server utilisation to lower video view unit costs 8#9Revenue initiatives to underpin medium-term earnings growth - Video Accounts in-feed ads ☑ Substantial user engagement • Total time spent exceeded 80% of Moments Total video views increased over 200% YoY + Leveraging unique ecosystem . Full-funnel solutions with effective conversion tools (e.g. Mini Program and WeCom) Deep user insight Social graph empowers user reach and engagement • . S 00:01 Launching Video Accounts in-feed ads 16:32 !!! 4G LOUIS VUITTON (即刻获悉奇幻秘境 路易威登2022秋冬男装系列 Expand our ad market share • 「了解更多 创想无边,风格无界。Pouts Dreamhouse™ 展现 多元包容力量,致敬时代Ad • 即刻获悉奇幻秘境 路易威登2022秋冬男装系列 详情页面 了解更多 创想无边,风格无界。Louis Dreamhouset™ 展现 多元包容力量,致敬时代。 Ad Advertisers already spending aggressively on multiple short video platforms Opportunity to capture more ad budget, engage with more advertisers Improve our profitability • Layer new revenue stream with high incremental margin onto existing cost base Path forward for monetisation Launched contract ads in mid-July, to be followed by bidding ads by the end. of August • Similar progressive monetisation framework to Moments, steeper ramp curve given size of traffic and existing advertiser demand#10Positioned for broader revenue upturn when macro environment improves Regulations progressing from rectification to normalisation Recent regulatory direction trending more positive for platform economy: 1) to promote well-regulated, healthy and sustainable development; 2) to complete rectification; and 3) to carry out regular supervision Issuance of new Banhao should help overall game industry renew growth We expect to receive Banhao in the future, benefitting our domestic game business Geared to China's economic upturn Approximately half of our revenues closely contribute to, and benefit from, China's economic activity • payment volume Commercial recovered to high-teens YoY growth in June Commercial TPV YoY% Ad revenue decline rate stabilised in 2Q22, before launch of Video Accounts in-feed ads and under current macro Ad revenue YoY% LTM Revenue FBS & Ad 46% Dec-21 Jan-Feb-22 Mar-22 Apr-22 May-22 Jun-22 23% 23% 5% -13% -18% -18% 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 10#111. Overview 2. Strategy Review 3. Business Review 4. Financial Review 5. Q&A#12Revenue by Segment In billion RMB 144.2 142.4 138.3 135.3 1% 2% 135.5 134.0 133.7 1% 1% 1% 125.4 1% 3% 1% 114.9 30% 33% 108.1 30% 1% 29% 32% 105.8 32% 29% 1% 26% 97.2 3% 26% 88.8 1% 25% 2% 28% 28% 26% 16% 16% 17% 15% 13% 17% 14% 18% 16% 16% 8% 7% 8% 8% 8% 9% 8% 19% 7% 19% 8% 7% 18% 4% 7% 3% 24% 25% 25% 23% 24% 21% 24% 28% 26% 22% 25% 28% 22% 23% 23% 23% 21% 22% 21% 21% 20% 22% 21% 23% 23% 21% 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 ■Social Networks ■Domestic Games International Games Online Advertising FBS Others 12#13Value Added Services In billion RMB -0.5% YOY -1.5% QoQ 72.0 72.7 71.7 71.7 10.9 -1.4% 10.6 10.7 +1.3% 10.7 32.1 -1.1% 31.8 33.0 -4% 31.8 29.0 +0.6% 29.2 29.1 +0.2% 29.2 2Q21 2Q22 1Q22 Social Networks Domestic Games · 2Q22 International Games Social Networks • 2Q22 revenue was up 1% YoY to RMB29.2 billion. Revenue from Video Accounts live streaming service increased; revenue from music- and games-related live streaming services decreased • Video subscription revenue increased YoY, as less aggressive promotions resulted in lower subscriptions (122 million) but higher ARPU. Tencent Video released popular self-commissioned drama series such as A Dream of Splendor which ranked #1 industry-wide* in June. Per QuestMobile, Tencent Video widened its lead, with mobile DAU 20%+ higher than its closest peer in June • Music subscription count and subscription revenue increased YoY. In July, TME sold over 6 million units of Jay Chou's digital album, reflecting pent-up demand for user engagement with artists Domestic Games • Revenue down 1% YoY to RMB31.8 billion, reflecting transitional industry challenges (fewer big game releases, lower user spending and minor protection measures). Revenue from existing games HoK, LoL and Moonlight Blade Mobile decreased; Fight of The Golden Spatula, LoL: Wild Rift and Return to Empire contributed incremental revenue International Games Revenue decreased 1% YoY to RMB10.7 billion due to industry-wide normalisation in user spending on mobile games post-COVID. PC game revenue increased because of growth in VALORANT and the successful launch of V Rising Mobile games VAS revenue declined 2% YoY to RMB40.0 billion. PC client games revenue increased 5% YoY to RMB11.6 billion *Source: Enlightent, by video views across all online platforms in China for June 2022 13#14Social Networks Video Accounts sustained strong growth momentum in user engagement and content • Leverage social sharing and enhanced algorithms to grow total video • views by 200%+ YoY; Al-recommended content consumption grew even faster, by 400% YoY, in video views Daily active creators and video uploads increased by 100% + YoY, driving rich and diverse content • Increased Video Accounts mindshare among live streaming users with highly successful live concerts 00 Enriching virtual experience in Super QQ Show • Introduced shared virtual spaces where users can make friends and engage in community activities • Provided more immersive conversational experience, such as inviting friends to chat over live audio using avatars Video Accounts live concerts 童年 吸狐汽车 Backstreet Boys 46 million viewers ♡ 视频号 BACKSTREET BOYS 后街男孩视频号全球首场线上演唱会 2022.6.24 20:30 独家呈现 變撒点野 崔健首场视频号线上演唱会, 罗大佑首场视频号线上演唱会 Cui Jian 46 million viewers 19:30 6 5月27日 20:00 正式演出 ● 微信提一提 多大佑 Tayo Lo 42 million viewers EVERYBODY ROCK YOUR BODY! 全新林肯Z独家冠名 EEETE ZMEN 2021FOSDFOFS Community activity in shared virtual space 14#15Domestic Games Clear leadership in key genres Battle arena: HoK #1 game by total time spent across all games, adult players total time spent increased slightly YoY; LoL: Wild Rift ranked #6 Action/shooter: Peacekeeper Elite ranked #2 by total time spent industry-wide, adult players total time spent grew substantially YoY Growing success in newest genres Management simulation: LoL Esports Manager topped grossing receipts among all simulation games year-to-date Extraction shooter: Arena Breakout achieved #8 by total time spent in July Auto-battler: Fight of The Golden Spatula ranked #4 by total time spent CC五五號戏转 Source: QuestMobile, data.ai 等等我马上到 HOK 共 / 起 / 约 / 定 04.30-05.05 「碧多福利根露 尽在五五丽友节 英雄联盟电竞经理 87 SSR 5 LV 100 88 SSR 5 22-W 22- 86 SSR 45 LV 100 c DG NATIONAL 英雄集结吧! O Woo Ga LoL Esports Manager THESHY 15#16International Games VALORANT Sustaining robust growth Achieved record high MAU and quarterly grossing receipts in 2Q22 The most successful PC game launched globally since 2020 with competitive gameplay, creative content and vibrant user community Expanding leadership in casual games Miniclip acquired SYBO, developer of evergreen runner game Subway Surfers, #1 most-downloaded* mobile game globally over last decade Subway Surfers boosts Miniclip's DAU by 30 million to 70 million - Miniclip in top-tier of mobile game studios globally VR RISING Breakthrough in emerging genre Original SOC game integrating real- time combat, developed by in-house Swedish studio Stunlock Sold 2 million copies in its first month of Early Access on Steam Source: data.ai, Jan 2012- Jun 2022 p YEARS FAN FAVORITE DESTINATIONS 16#17Online Advertising In billion RMB 22.8 -18% YOY +4% QoQ 18.6 18.6 18.0 19.5 -17% 16.1 +3% 16.1 15.7 3.3 -25% +8% 2.5 2.3 2.5 2Q21 2Q22 Social & Others 1Q22 2Q22 Media Overall • 2Q22 revenue declined 18% YoY, reflecting notable weakness in Internet services, education and finance sectors • Ad spend was hardest hit in the first two months of 2Q. In June, YoY decline magnitude narrowed as large eCommerce platforms increased ad spend for 618 promotion, and underlying ad demand recovered moderately Social & Others • Moments introduced an immersive display ad format, frame-breaking ad, which gained traction from brand advertisers • Video Accounts started showing in-feed ads to active users in July, and selling on a contract basis to brand advertisers Media • Video ad revenue increased sequentially due to stronger content release and positive seasonality in 2Q22, despite tough comparison in 1Q22 which benefitted from Beijing 2022 Winter Olympics 17#18FinTech and Business Services In billion RMB +0.8% YOY -1.3% QoQ 42.8 42.2 42.2 41.9 2Q21 2Q22 1Q22 2Q22 FinTech Services • YoY revenue growth was slower than previous quarters as COVID-19 resurgence temporarily impacted commercial payment activities • Commercial payment volume slowed to low single-digit growth in April and resumed to high-teens growth in June Business Services • Revenue declined slightly YoY mainly due to reduction in loss-making activities, in particular projects with high proportion of subcontracts. Internally developed products revenue grew sequentially. Hence, gross margin recovered QoQ on an improved revenue mix and reduced cost base • TDSQL database: 1) contributed over 5% of our Cloud revenue, growing over 30% YoY; 2) increased on-premise deployments in key financial institutions; 3) upgraded cloud-native solution TDSQL-C to deliver a 2x performance at lower cost compared to traditional cloud databases • Tencent Meeting launched a marketplace for plug-ins to enrich meeting experiences in different use cases, such as digital contracting, note- taking and customer management 18#191. Overview 2. Strategy Review 3. Business Review 4. Financial Review 5. Q&A#20Income Statement In billion RMB Revenue 2Q2022 2Q2021 YOY 1Q2022 QoQ 134.0 138.3 -3% 135.5 -1.1% COPS Gross profit Interest income Other gains, net Operating expenses (76.1) (75.6) +0.9% (78.4) -3% 57.9 62.7 -8% 57.1 +1.4% 1.9 1.6 +19% 1.7 +12% 4.4 20.8 -79% 13.1 -66% (34.1) (32.6) +5% (34.7) -2% Operating profit 30.1 52.5 -43% 37.2 -19% Finance costs, net (1.8) (1.9) -7% (1.9) -7% Share of profit/(loss) of associates & JVs, net (4.5) (3.9) +16% (6.3) -29% Income tax expense (4.6) (3.7) +25% (5.3) -13% Net profit 19.2 43.0 -55% 23.7 -19% Net profit attributable to equity holders 18.6 42.6 -56% 23.4 -20% Diluted EPS in RMB 1.915 4.387 -56% 2.404 -20% Non-IFRS Operating Profit 36.7 42.8 -14% 36.5 +0.4% Net profit attributable to equity holders 28.1 34.0 -17% 25.5 +10% Diluted EPS in RMB 2.896 3.504 -17% 2.620 +11% 20 20#21Non-IFRS Adjustments Net (gains)/ In billion RMB IFRS 2Q2022 losses from SBC Amortisation of intangible Impairment provisions/ SSV & CPP³ Others4 Tax effect investee companies¹ Non-IFRS 2Q2022 YoY change QoQ change assets (reversals)² Operating profit 30.1 6.5 (5.5) 1.2 2.8 1.4 0.2 36.7 -14% +0.4% Net profit 19.2 8.4 (6.1) 3.0 3.2 1.4 0.2 (0.3) 29.0 -18% +10% Net profit attributable to equity holders 18.6 8.3 (6.0) 2.7 3.2 1.4 0.2 (0.3) 28.1 -17% +10% Operating margin 22.4% 27.4% -3.6ppt +0.4ppt Net margin 14.3% 21.6% -3.8ppt +2.2ppt Note: 1. Including net (gains)/losses on deemed disposals/disposals of investee companies, fair value changes arising from investee companies, and other expenses in relation to equity transactions of investee companies. 2. Impairment provisions/(reversals) for associates, joint ventures, goodwill and other intangible assets arising from acquisitions. 3. Mainly including donations and expenses incurred for the Group's Sustainable Social Value & Common Prosperity Programme (excluding share-based compensation expenses) 4. Mainly including expenses incurred for regulatory fines in the Mainland of China and certain litigation settlements 21#22Gross Margins 48.9 46.3 46.3 45.2 45.4 44.1 43.7 43.6 44.0 44.1 43.2 42.1 40.1 Overall Gross Margin (%) 59.0 53.7 55.1 52.6 51.8 52.6 52.9 53.0 51.5 50.4 50.6 50.1 48.7 Value Added Services (%) 54.3 53.3 51.4 50.9 48.6 48.8 49.2 48.8 45.1 46.4 42.7 40.6 36.7 Online Advertising (%) 33.3 32.3 32.0 31.6 27.7 28.1 27.9 28.9 27.9 28.5 28.5 27.1 24.0 FinTech and Business Services (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 22 22#23Operating Expenses S&M in billion RMB -21% YOY -2% QoQ R&D in billion RMB +17% YOY -2% QoQ G&A (excl. R&D) in billion RMB +14% YOY -0.6% QoQ 15.0 15.4 15.0 12.8 11.2 11.3 11.2 9.8 10.0 7.9 8.1 7.9 2Q21 2Q22 1Q22 2Q22 2Q21 2Q22 1Q22 2Q22 2Q21 2Q22 1Q22 2Q22 Non-IFRS -22% YOY -2% QoQ Non-IFRS +16% +0.3% YOY QoQ Non-IFRS +23% +10% YOY QoQ 23#24Non-IFRS Margin Ratios 32.9 32.8 30.7 29.4 30.4 31.6 31.0 28.7 28.5 28.7 27.0 27.4 23.0 Non-IFRS Operating Margin (%) 27.2 27.2 26.6 25.8 25.9 25.2 25.8 25.5 25.4 22.8 21.6 19.4 17.9 Non-IFRS Net Margin (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 24 24#25CAPEX, FCF and Cash Position In billion RMB Operating CAPEX Non-operating CAPEX Total CAPEX 2Q2022 2Q2021 YOY 1Q2022 QoQ 2.1 5.9 -65% 5.2 -60% 0.9 1.0 -8% 1.8 -46% 3.0 6.9 -57% 7.0 -57% Operating Cash Flow 35.7 32.0 +12% 33.8 +6% Less: CAPEX Paid (5.6) (7.1) -22% (8.2) -32% Payments for media content (5.8) (6.4) -9% (8.9) -34% Payments for lease liabilities (1.8) (1.2) +53% (1.5) +24% Free Cash Flow 22.5 17.3 +30% 15.2 +47% Total Cash 315.9 255.2 +24% 304.1 +4% Less: Total Debt (336.3) (276.2) +22% (315.1) +7% Net (Debt)/Cash (20.4) (21.0) -3% (11.0) +85% • Repurchased approximately 9.7 million shares with an aggregated cost of RMB3.1 billion during 2Q22 • Paid cash dividend of RMB13 billion during 2Q22 • As at 30 Jun 2022, the fair value of our shareholdings¹ in listed investee companies (excluding subsidiaries) was approximately RMB602 billion (USD90 billion) Note: 1. Including those held via special purpose vehicles, on an attributable basis. 25 25#261. Overview 2. Strategy Review 3. Business Review 4. Financial Review 5. Q&A#27Tencent Holdings Limited 2022 Second Quarter Results Presentation Thank you! Tencent https://www.tencent.com/ir