Tencent Holdings (HKEX:0700) today released its financial report for the third quarter of 2023 ending September 30: revenue was 154.6 billion yuan, up 10% year on year; net profit was 36.18 billion yuan, down 9% year on year; under non-international financial reporting standards, net profit was 44.92 billion yuan, up 39% year on year.

After the financial report was released, Tencent Chairman and CEO Ma Huateng, President Liu Chiping, Chief Strategy Officer James Michelle (James Michelle), and CFO Luo Shuohan held a financial conference call to interpret the key points of the financial report and answer questions from analysts.

Here are the highlights of the analyst Q&A session in this conference call:

UBS Analyst Kenneth Fong: Will Tencent use the WeChat Mini Game platform to promote some of the company's game products that have been launched for a long time and where player participation is gradually declining? Has the strategy for promoting games through exclusive apps and mini-games been adjusted? Also, the company recently launched a large-scale mixed-language model and related use cases. What progress has been made in the strategy for developing the AI business, including product launch, commercial monetization, and focus areas?

James Michelle: WeChat Mini Games has brought platform development opportunities to the company. Currently, there are thousands of game companies focusing on developing WeChat mini game products. We are happy to cultivate this ecosystem, and we don't want to put pressure on its development.

As to whether the story mentioned will use this platform to revive the vitality of some existing game products and launch related mini-game products, the reality is that Tencent's game strategy thinking is not to think about reviving the influence of the game after the game has gone too far, but rather pursues how to maintain the longevity of game products. The design from the beginning must take into account the enduring popularity gathering and continued success, so the situation you mentioned is not our focus of work.

Liu Chiping: Regarding mixed yuan and the company's artificial intelligence strategy, we have actually invested in the mixed yuan business for a long time and have become one of the leaders in the large-scale language model industry in China. The scale of mixed yuan continues to expand. We are also preparing to launch the next generation upgrade model combining more expertise and architecture to improve the performance of this model. Its development also reflects the growth of the company's artificial intelligence business capabilities. The hybrid model is based on the Transformer architecture and can process huge amounts of training data and large-scale computing clusters. In the process of development, we have also developed more suitable artificial intelligence applications to empower other businesses.

Hyangyuan is very good at generating text, and has also excelled in SaaS (software as a service) application services. For example, users of Tencent meetings use hybrid elements to generate meeting minutes. If they miss some of the meeting content, the hybrid model can help users grasp meeting dynamics, etc.; another example is that hybrid yuan can help Tencent document users use the service more efficiently, and we have already begun providing this service to external users.

In other aspects, mixed yuan can also improve work efficiency for customers, including customer service APIs, which many enterprise customers are testing to meet their user interaction needs; in terms of code generation, hybrid yuan can also present relatively good results, reduce workload and improve efficiency for programmers; mixed yuan also provides help in content generation and advertising business, optimizes advertising content for advertisers, achieves accurate delivery and increases click-through rates; application of hybrid yuan in game development, especially in art design, we are also using artificial intelligence technology to improve efficiency and reduce costs; artificial intelligence The application of technology in the video account business helps users edit more quickly.

Looking forward to the future, mixed yuan will provide more services to corporate customers, improve advertising efficiency, and achieve better integration between advertising and sales processes. In the more distant future, there will also be consumer-oriented products, such as artificial intelligence assistants, which will have more room for imagination.

Morgan Stanley Analyst Gary Yu: The company mentioned the importance of investing in the game business two years ago. What stage of game development is the company currently in? What impact will the previous investment have on the company's research and development of various game types, as well as its financial performance in the next year or two? Another question is about capital management. Last year, the company increased dividends and also accelerated some repurchases. How does management view opportunities in external portfolios? Similar to Tencent's investments in JD and Meituan, will the company sell its shares like last year?

James Michelle: We have indeed extended the development cycle for some games by 6 to 18 months. There are several reasons. One is because we have discovered that the best-performing games have greater opportunities. For game companies developing these products, we will be more patient, and we will also spend more time and resources to polish game products with them and strive for the best.

The second reason is our current model of pursuing high-quality growth. Good progress in business such as video accounts, WeChat games, and e-commerce allows us to maintain a relatively healthy growth rate even if no major game products are released and listed within three months. Based on the above two considerations, we hope to keep fishing big fish longer and focus more on the products to be sold in the future. As Liu Chiping said, we currently have 9 game products in the planning process. One new product will be released in the next few weeks, and several others will be released within the next few months. The release of these products will also test the success of our strategy.

Liu Chiping: On the question of shareholder returns, first, we attach importance to shareholder returns, and we also use different methods to enhance shareholder returns. Second, we do have strong cash flow and a very large investment portfolio. They are all very liquid stock investments, and we can use various tools flexibly to increase shareholder returns.

You mentioned repurchases, dividends, or previously executed stock distributions, including cash received from exiting investments. We will dynamically use these tools and combine them on a case-by-case basis to improve shareholder returns. Currently, the valuation of internet companies in the market is basically at an all-time low, so I think buying back might be a better option.

(Continuously updated...)