Financial Report: Tencent's total revenue in the first half of 2008 was 3.03 billion yuan - Age1983

HONG KONG, Aug 13, 2008 - (ACN Newswire) - Tencent Holdings Limited ("Tencent" or the "Company", SEHK 00700), a leading Internet and mobile & telecom value-added services ("VAS") provider in China, today announced its unaudited consolidated results for the second quarter and first half year ended June 30, 2008.

Summary of First Half 2008 Results:

Total revenues were RMB3.03 billion (USD442 million), representing an increase of 84.8% over the same period last year.

Internet VAS revenue was RMB2.04 billion (USD297 million), representing an increase of 94.2% over the same period last year.

Mobile and Telecom VAS revenue was RMB627 million (USD91 million), representing an increase of 55.6% over the same period last year.

Online advertising revenue was RMB367 million (USD54 million), representing an increase of 94.7% over the same period last year.

Gross profit was RMB2.19 billion (USD320 million), representing an increase of 92.6% over the same period last year.

Operating profit was RMB1.50 billion (USD219 million), representing an increase of 117.8% over the same period last year.

Profit for the period was RMB1.19 billion (USD174 million), representing an increase of 91.2% over the same period last year.

Profit attributable to equity holders of the Company was RMB1.18 billion (USD172 million), representing an increase of 88.6% over the same period last year.

Summary of Second Quarter 2008 Results:

Total revenues were RMB1.60 billion (USD233 million), representing an increase of 11.6% over the previous quarter and 84.3% over the same period last year.

Internet VAS revenue was RMB1.04 billion (USD151 million), representing an increase of 3.8% over the previous quarter and 89.9% over the same period last year.

Mobile and Telecom VAS revenue was RMB338 million (USD49 million), representing an increase of 17.4% over the previous quarter and 64.2% over the same period last year.

Online advertising revenue was RMB223 million (USD33 million), representing an increase of 54.1% over the previous quarter and 94.4% over the same period last year.

Gross profit was RMB1.15 billion (USD167 million), representing an increase of 9.8% over the previous quarter and 90.5% over the same period last year. Gross margin decreased from 72.9% in the previous quarter to 71.7%.

Operating profit was RMB765 million (USD112 million), representing an increase of 3.8% over the previous quarter and 111.2% over the same period last year. Operating margin decreased from 51.5% in the previous quarter to 47.8%.

Profit for the period was RMB652 million (USD95 million), representing an increase of 20.3% over the previous quarter and 95.0% over the same period last year. Net margin increased from 37.8% in the previous quarter to 40.8%.

Profit attributable to equity holders of the Company was RMB644 million (USD94 million), representing an increase of 20.5% over the previous quarter and 92.5% over the same period last year.

Key Operating Metrics:

- Total registered accounts on instant messaging reached 822 million, representing an increase of 5.0% over the previous quarter.

- Active accounts on instant messaging reached 342 million, representing an increase of 7.6% over the previous quarter.

- Peak concurrent accounts on instant messaging reached 42 million, representing an increase of 4.2% over the previous quarter.

- Peak concurrent accounts on QQ Games portal (including only small casual games) remained stable at 4 million.

- Paying subscription users of Internet VAS reached 26.1 million, representing an increase of 16.5% over the previous quarter.

- Paying subscription users of Mobile and Telecom VAS reached 13.4 million, representing an increase of 6.4% over the previous quarter.

Mr. Ma Huateng, Chairman and Chief Executive Officer of Tencent, said: "In Q2 2008, our diversified portfolio of businesses delivered solid results. While community Internet VAS experienced adverse seasonal factors, online gaming, wireless VAS and online advertising all achieved strong growth. We expect Q3 to be a seasonally strong quarter for our Internet VAS business; however, the Olympics may adversely affect user activity as they spend more time watching the events."

Mr. Ma added: "On the other hand, we have mobilized over 500 people dedicated to the Olympics effort. We will take full advantage of this historic event to further enhance the recognition of QQ.com as a leading online media in China among users and advertisers."

Business Review

Internet VAS revenue increased by 3.8% quarter-on-quarter to RMB1.04 billion, accounting for 64.8% of total revenues in Q2. The sequential growth was mainly driven by online gaming despite the seasonally weak Q2 due to the absence of long holidays and students preparing for exams. On the other hand, non-gaming Internet VAS such as QQ Membership, QQ Show and QQ Pet experienced adverse seasonal factors.

Revenue from online gaming within Internet VAS was RMB452 million, representing an increase of 15.6% quarter-on-quarter. The increase was mainly driven by higher revenue from QQ Games portal, QQ Fantasy and QQ X-Trans, as well as new launches including Dungeon & Fighter, QQ Dance and Crossfire. In addition, QQ Fantasy launched a new add-on pack in April which increased the maximum character level from 60 to 80 and contributed to revenue growth. However, the Company suspended operations of all its online games for three days in May to express deep condolences for the victims of the Sichuan earthquake disaster, which had a slight negative impact on revenue.

Mobile and Telecom VAS revenue increased by 17.4% quarter-on-quarter to RMB338 million, accounting for 21.1% of total revenues in Q2. The increase was mainly due to growth in 2.5G services, particularly WAP services which benefited from higher-than-expected effective rate, improved user experience and increased marketing efforts, as well as mobile gaming services which benefited from the launch of more high-quality games and enhanced content. In addition, voice VAS revenue also increased due to increased marketing efforts for mobile IVR services. Furthermore, the A rating for service providers has been beneficial to the growth of SMS, WAP and IVR services.

Online advertising revenue increased by 54.1% quarter-on-quarter to RMB223 million, accounting for 13.9% of total revenues in Q2. Q2 is traditionally a strong season for advertising sales. In addition, the increased brand awareness among customers of Tencent's effective advertising platform contributed to the revenue growth.

Other Key Financial Information

Basic earnings per share was RMB0.359. Diluted earnings per share was RMB0.349. Weighted average number of shares in issue was 1.80 billion.

Share-based compensation expenses were RMB32 million in the quarter compared with RMB35 million in the previous quarter. Foreign exchange losses were RMB41 million in the quarter compared with RMB95 million in the previous quarter, due to Renminbi appreciation.