Tencent Holdings Limited (700) Earnings Call Transcript & Summary

Good day, and good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2023 First Quarter Results Announcement Webinar. I'm Wendy Huang from Tencent IR team. [Operator Instructions] And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties that may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Now let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau; and Chief Strategy Officer, James Mitchell, will provide a business review. Chief Financial Officer, John Lo, will conclude with financial discussion before we open the floor for questions. Now I will pass it to Pony.

Thank you, Wendy. Good evening. Thank you for joining us. During the first quarter, we resumed a double-digit revenue growth rate as our payment volumes benefited from and facilitated domestic consumption recovery. Our games revenue improved and our advertising revenue sustained rapid growth. Our non-IFRS net profit increased at a faster pace, reflecting a positive revenue mix shift, operational efficiencies and an easy base period. We are investing in our AI capabilities and cloud infrastructure to embrace the opportunities brought by foundation models and expect AI to be a growth multiplier that enables us to better serve our users, customers and society at large. Now let me go through the slide financial numbers for the quarter. Total revenue was RMB 150 billion, up 11% year-on-year and 3% quarter-on-quarter. Gross profit was RMB 68 billion, up 19% year-on-year and 10% quarter-on-quarter. Non-IFRS operating profit was RMB 48 billion, up 32% year-on-year and 23% quarter-on-quarter. Non-IFRS net profit attributable to equity holders was RMB 33 billion, up 27% year-on-year and 10% quarter-on-quarter. With our key services, we focused on upgrading our technologies and product innovations. Our franchise in Communications and Social Networks remain strong. Combined MAU of Weixin and WeChat grew 2% year-on-year to 1.3 billion, while QQ mobile device's MAU grew 6% year-on-year to CNY 597 million. For games, we expand our leadership via extending popularity of established franchise and success of new released in China and international markets. For digital content, we retained our first place position by subscription accounts with high-quality content across video, music and literature. In FinTech Services, commercial payment volume rebound sharply as consumption activities recovered in China. For cloud, we operate one of China's largest Infrastructure as a Service platforms and announced our high performance computing cluster in April, which will significantly enhance the efficiency of our foundation model chain. We are the second biggest provider of PaaS in China by revenue, and we operate leading SaaS to, such as Tencent Meeting, the most widely used stand-alone video conferencing as apps. I will now hand over to Martin and James for business review.

Thank you, Pony. Good evening, and good morning to everybody. For the first quarter of 2023, our total revenue was up 11% year-on-year. VAS represented 53% of our total revenue, within which Social Networks' subsegment was 21%, Domestic Game subsegment was 23% and international games was 9%. Online Advertising was 14% of total revenue, and FinTech and Business Services was 32% of total revenue. For our value-added service segment, the revenue was RMB 79 billion, up 9% year-on-year. Social Networks' revenue was up 6% year-on-year to RMB 31 billion, reflecting growth of in-game item sales and music subscription revenue. Our long-form video subscription revenue decreased 6% year-on-year due to delayed content releases during the first quarter. However, we have taken steps to address this situation, including, number one, enhancing our content to cater to evolving user demand. For example, we released our self-commissioned drama series, The Long Season, in April, which became the highest-rated domestic drama series in the past 5 years for the Douban review aggregator site. And number two, extending our collaboration with short-form video services, which should help long-form content reach more users and capture more monetization opportunities. Music subscription revenue increased 30% year-on-year driven by growth in paying users and ARPU. We upgraded the listening experience and strengthened cooperation with labels and artists, which resulted in higher user engagement and paying propensity. Domestic games revenue resumed growth to 6% year-on-year and reached RMB 35 billion. On top of solid performance from key titles such as Honour of Kings, DnF and CrossFire Mobile, new game Arena Breakout, which we released in third quarter last year also contributed notably to the growth. International games revenue increased by 25% year-on-year or 18% in constant currency terms to RMB 13 billion. The robust performance of VALORANT as well as contributions from 2022 releases, NIKKE and Triple Match 3D, drove up revenue. For Communications and Social Networks, Weixin video accounts consumption continued to grow with rapid increases in time spent and video views. In order to drive its continued organic growth, we are nurturing a healthy and active creator community. First, in order to attract more creators and help them reach their target audience more efficiently, we have upgraded our onboarding programs with greater traffic incentives, wider creator coverage and more effective content creation tools. Second, we have enhanced the eCommerce infrastructure, enabling creators to be benefiting from sales commissions associated with e-commerce transactions. For example, we enriched the customer management functionalities and video accounts shop, facilitating creators to better engage with customers and increase sales conversion. As a result, our creator community is increasingly vibrant. In the first quarter, daily active creators and daily video uploads more than doubled year-on-year, while the number of creators with over 10,000 followers more than tripled year-on-year. On QQ, we deployed a new architecture to optimize development efficiency across operating systems on a unified code base. This new technology foundation also enhances user security with strengthened data encryption mechanisms and improved users graphical experience with more advanced rendering solutions. We believe this upgrade will enable faster innovation in QQ's user experience going forward. Moving on to Domestic Games. Before discussing product and financial trends, I want to highlight that as a result of our continued and dedicated Minor protection program, users aged under 18 contributed less than 1% of total time spent and gross proceeds in the quarter. Time spent and gross receipts from users aged under 18 reduced by 96% and 90% from 3 years ago, respectively. We'll continue to take our societal responsibility with regard to games content and Minor protection very seriously. Looking into the performance of our most popular games, Honour of Kings launched highly appealing ShanHaiJing-themed outfits with targeted marketing programs during the Chinese New Year season, contributing to record high quarterly growth receipts. CrossFire, a PC game we have operated since 2008, successfully attracted returning players with promotions targeting Internet cafes. CrossFire Mobile, which we'd launched in 2015, released a popular themed map, outfit and weapon items based on the virtual idol group created for the game. Both CrossFire and CrossFire Mobile achieved record high gross receipts in the quarter. Additionally, new games we launched recently in high-potential genres have generated strong traction. The Fight of Golden Spatula, which has stayed as the #1 auto-battler game since launch in 2021 increased its gross receipts by more than 30% year-on-year in the quarter. We recently launched a fast-paced game mode that appeals to returning and new players, driving average DAU to a record high of over 10 million in April 2023. With Arena Breakout, the most popular extraction shooter game in China, we have been nurturing a highly engaged user base since launch in July 2022 and stepped up marketing activities during the Chinese New Year. In the first quarter, the title grew and achieved new milestones in DAU and gross receipts. We launched Metal Slug Awakening in April, moving a classic arcade game IP to a mobile and multiplayer experience. Metal Slug ranked #1 among new action games released year-to-date. Now with that, I'll pass on to James.

Thank you, Martin, and good morning or afternoon or evening, everyone. For International Games, we increased gross receipts by a double-digit percentage year-on-year with strengthened performance through key titles. VALORANT grew its MAU year-on-year on a new map with a new agent and drove up its gross receipts by over 30% year-on-year with popular Japan-themed and Alien-themed weapon items in the quarter. PUBG Mobile resumed sequential daily active user growth in the quarter after several quarters of decline, benefiting from new combat features and enhanced player-versus-player gameplay. We introduced a map editing tool to facilitate user-generated content, enhancing user engagement and longevity. Our subsidiary, Miniclip launched Triple Match 3D in April last year, which has become a breakout success in the highly competitive match game genre. Leveraging creative gameplay and effective user acquisition, Triple Match 3D is the only title released within the last 2 years, which has broken into the top 10 games in the match genre, driving Miniclip's gross receipts to a record high in the quarter. Turning to Online Advertising. Revenue was RMB 21 billion in the first quarter, up 17% year-on-year. As a reminder, during the same period last year, our revenue included a several percentage point contribution from the Beijing Winter Olympics. The rapid year-on-year revenue growth was supported by the new revenue stream from Video Accounts ads, solid demand for Mini Program ads and the continued recovery of our mobile ad network. Sequentially, revenue declined 15% due to adverse seasonality. Ad spend grew year-on-year across most categories benefiting from the consumption recovery in China. For example, fast-moving consumer goods advertisers increased spending to capture retail sales growth. Travel advertisers increased spending due to rebounding off-line activities. And large e-commerce platforms increasingly recognize us as a key user acquisition channel, who is spending with us accordingly. We upgraded our machine learning advertising platform to deliver higher conversions for advertisers. For example, we help our advertisers dynamically feature their most relevant products inside their advertisements by applying our deep learning model to the standard product unit attributes we have aggregated within our SPU database. Advertising on Weixin properties, which contribute over half of our total advertising revenue, outgrew the overall ad business. Video Accounts revenue ramped up as we attracted new advertisers and incremental spending from existing advertisers. The average revenue per 1,000 impressions of Video Accounts ads sustained at a premium level versus revenue per 1,000 impressions from other short-form video platforms. The content platforms, our music ad revenue, grew rapidly year-on-year driven by the monetization of ad-supported music content as well as live concert sponsorships. Our long-form video ad revenue declined year-on-year due to fewer releases of popular content. Our mobile ad network revenue increased robustly year-on-year. On the supply side, we increased ad inventory in high conversion rate properties, such as the smartphone manufacturers' app stores. On the demand side, we attracted higher spending through return on investment-focused advertisers, such as eCommerce platforms. Looking at FinTech and Business Services, segment revenue was RMB 49 billion, up 14% year-on-year. For FinTech Services revenue resumed double-digit year-on-year growth benefiting from the recovery of payment activities. Off-line payment transactions rebounded more sharply than online as categories such as retail, travel and dining services benefited from people going outs and about more frequently. Meanwhile, year-on-year revenue growth in wealth management and consumer loans continued at healthy rates. For Business Services, year-on-year revenue growth turned positive in the first quarter, benefiting from stabilization for our cloud services after a period of extensive restructuring, plus the initial contributions from technology support fees that we've begun generating under Video Accounts live streaming eCommerce transactions. Business Services gross margin and gross profit increased notably year-on-year as we reduced loss-making activities and optimized costs and as we began the live streaming eCommerce monetization. Within cloud services, our Smart Transportation solutions are assisting the digitalization of large-scale transportation projects. For example, we leveraged our expertise in areas such as cloud infrastructure, digital mapping and 3D rendering for smart highway projects in Sichuan and metro systems in Guangzhou. And now I'll pass to John.

Thank you, James. Hello, everyone. For the first quarter of 2023, total revenue was RMB 150 billion, up 11% year-on-year. Gross profit was RMB 68.2 billion, up 19% year-on-year. Net ad gains were RMB 0.9 billion, down 93% year-on-year. Operating profit was RMB 40.4 billion, up 9% year-on-year. Net finance costs were RMB 2.6 billion, up 37% year-on-year due to increased interest expense. Share of profit of associates and joint venture was RMB 0.1 billion compared to a share of loss of RMB 6.3 billion for the first quarter of 2022. On a non-IFRS basis, share of loss was RMB 0.1 billion, improving from share of loss of RMB 2.2 billion last year. This was driven by improved ability of certain domestic associated due to the revenue growth and cross control measures. Income tax expenses increased by 118% year-on-year to RMB 11.5 billion due to pretax profit growth, increased reporting tax provision and a onetime deferred tax adjustment related to an overseas subsidiary. IFRS net profit attributable to equity holders was RMB 25.8 billion, up 10% year-on-year. Diluted EPS was RMB 2.639, up 10%. Now I will share our non-IFRS financial figures. Operating profit was RMB 48.4 billion, up 32% year-on-year. Net profit attributable to equity holders was RMB 32.5 billion, up 27% year-on-year. Diluted EPS was RMB 3.353, up 28% year-on-year. Moving on to gross margins. Overall gross margin was 45.5%, up 3.4 percentage points year-on-year. By segment, gross margin for VAS was 53.9%, up 3.5 percentage points year-on-year, driven by high-margin games revenue rebound. Gross margin for Online Advertising was 41.7%, up 5 percentage points year-on-year, thanks to strong demand for Video Accounting fee ads leading to higher revenue growth with low rate incremental -- gross margin for FinTech and Business Services was 34.5%, up 2.9 percentage points year-on-year. This was due to efficiency improvements and initial revenues from technology support fee for live streaming eCommerce and Video Accounts. On operating expenses, selling and marketing expenses were RMB 7 billion, representing 4.7% of revenues. This reflects a year-on-year decline of 13% primarily due to reduced marketing spend. R&D expenses were RMB 15.2 billion, down 1% year-on-year. G&A expenses, including -- excluding R&D, were RMB 9.4 billion, down 16% year-on-year. This reflects reduction in staff costs, including those relating to share-based compensation. At quarter end, we had approximately 106,000 employees, down 9% year-on-year or 2% quarter-on-quarter. Let's look at our operating net margin ratios. For the first quarter 2023, non-IFRS operating margin was 32.3%, up 5.3 percentage points year-on-year. Non-IFRS net margin was 22.3%, up 2.9 percentage points year-on-year. To conclude, I will highlight some key cash flow and balance sheet metrics. Total CapEx was RMB 4.4 billion, down 37% year-on-year. Within total CapEx, operating CapEx was RMB 1 billion, down 81% year-on-year reflecting our efforts to optimize spending and improve utilization of servers and equipment. Nonoperating CapEx rose by 91% year-on-year to RMB 3.4 billion due to ongoing construction projects. Free cash flow for the quarter was RMB 51.8 billion, up 240% year-on-year. This strong growth was driven by higher operating cash flow, thanks to our games revenue rebound as well as decreased free -- payments for CapEx and media content. Net cash position was RMB 31.5 billion compared to net debt of RMB 14.8 billion in the previous quarter. The sequential improvement was due to strong free cash flow generation. Thank you.

[Operator Instructions] First question comes from Alicia Yap from Citigroup. Alicia, can you speak up?

Yes. Management can you hear me?

We can't hear you clearly. Maybe you turn up the volume.

Okay. Can you hear me better now?

Yes, it's much better now.

Okay. Congrats on the solid set of results. First question related to your gaming business. It is delighted to see a number of the old franchise title regained strong popularity and also achieve a record growth of receipts during the quarter. So based on your observation and what you have seen from your gained performance, are there any notable differences in user gameplay behavior? Or the spending frequency or the willingness pattern that you could highlight that are quite different from what we saw during the pre-pandemic period? Just wondering if some of these robust game activity that you experienced during the quarter is more attributed to your effective promotional campaign. Or this is more the entire industry phenomenon? Second question is on your Business Services. So wondering what's management view on the recent price cut action by the major peers and how would that affect Tencent's planned initiative and also industry landscape.

Yes. Thank you for the questions, Alicia. So on the game business, not to be a down shake, but we feel very strongly that what you referred to as old games are, in fact, evergreen games. And if you look at our game portfolio, many of the biggest, most successful titles, including Honour of Kings, League of Legends, CrossFire, CrossFire Mobile, Peacekeeper Elite, PUBG Mobile, Arena Breakout in a competitive games, often team-based competitive games that are designed to be balanced, fair and playable for years or for decades. And that is the reality that we're seeing across the industry with other similar team-based competitive games, and that is the reality we have really sought to nurture with these big evergreen games. So in terms of why the games performed well in the first quarter, then -- we believe it comes down largely to appealing content. We released appealing content. Players responded to that appealing content by investing in some cases, more time and in other cases, more money or both. Hence, the more money translates into more growth in receipts and, therefore, more revenue. In terms of whether there were special promotional campaigns, we always promote the virtual outfits. I think over time, we've become progressively better at promoting the right virtual outfits at the right time of the calendar year. So the business has become more akin to luxury goods and that there are certain virtual outfits we promote to tie in to the Lunar New Year. There are others we promote to tie in to the May Day holidays into the summer period and so on and so forth. But that's an ongoing trend as opposed to a single quarter phenomenon. And then in terms of how user behavior has changed from pre-COVID to today, we don't see a dramatic change. I think it's probably fair to say that in the 3 years since China went into COVID, despite mixed economic trends, purchasing power has generally increased. The removal of the minor game players skews up the spending power from those who are still playing games and who are older. So therefore, it's natural that there's more ability to spend more on high-quality content now than it was the case 3 years ago. So that's in terms of the games and particularly the evergreen games. There's many other kinds of games, including content-driven games, and we're seeking to reinforce our position in those other kinds of games. But the big games that we really talked about this quarter were typically these Evergreen games. On the Business Services side and specifically cloud and the impact of price cuts, the impact of these price cuts on Tencent as a whole is not notable. As you know, cloud only represents a mid-single-digit percentage of our total revenue. Within that, the price cuts only apply to Infrastructure as a Service, which is a subset of that mid-single digits. And then even within Infrastructure as a Service, if you look at the price cuts that have been widely announced in the industry in recent weeks, they apply to long-term prepaid contracts. And those long-term prepaid contracts are generally entered into by small- and medium-sized businesses, but not by larger enterprises. So this is an industry where over time, the input costs of servers and bandwidth and so forth are generally falling and it makes sense that the participants in the industry pass on those falling input costs into falling pricing to their customers. But the percentage of our revenue that is impacted by this particular round of price adjustments is in the few basis points range. So it's not a major moving part for Tencent as a whole. What's more important for us is just continuing to double down on our competitive strengths within cloud and continue to provide the best possible service to our customers, of which price is one, but not the only facet. Thank you.

We will take the next question from Alex C. Yao from JPMorgan.

Congrats on a strong quarter. I have 2 questions. Number one is on the balance sheet that -- current deferred revenue increased sharply by 18% year-on-year this quarter. This is a big change compared to the trend in the past several quarters. Can you elaborate the reason? And should we expect a strong VAS and the gaming revenue in the next perhaps 2 to 3 quarters? And then the second question is around the FinTech development. We noticed you guys recently launched installment loan product to selected Weixin payment users. Can you discuss how fast will you roll out the product to the rest of the Weixin Pay users and how should we think about the financial impact on your FinTech segment?

Yes. Firstly, I would like to explain a little bit about what is inside the deferred revenue. Actually, there are a lot of components, including the virtual game items, including business cooperation agreements, prepaid advertising, prepaid [ cards ], prepaid tokens, a lot of different type of prepaids in there. So in terms of year-on-year growth, I think it's more due to the fact that the online games actually doing very well in terms of the cash consumption. However, well, if you look at the -- we should look at the total deferred revenue rather than just the current deferred revenue because it represents some of the items that might extend beyond one year. So if you look at the total deferred revenue, actually, it dropped by 1%. And on a quarter-on-quarter basis, it increased by 17% due to the reasons that I have mentioned. And I think for PCA, it's quite natural that it will drop quarter-over-quarter because it is amortized according to the original contract. And in terms of the prepaid advertising, actually, it dropped partly due to seasonality and partly due to the PCA amortization that I've just mentioned. So if you look at the deferred revenue, I suggest we should add the 2 up to arrive at the actual deferred revenue for the whole company.

In terms of installment loan product, that's actually tied to consumption. So this is more like if somebody buys an item of high value, then it actually allows the user to select -- to pay for the item on an installment basis. And this is a product which we are pilot testing right now, and we're not in a hurry to roll that out on a broad basis. And this is a product which is designed alongside with some principles, which we design our FinTech products. Number one, it's actually sort of in due compliance of the regulatory authorities' regulation. And number two, this is something which our users want. So it is designed with a very key focus on generating user value because users when they want to buy an item, and it's a clear consumption need and if they have the creditworthiness, right, then we are in a good position to give them an installment loan. And in some cases, the merchants actually want to see that happen as well. And then in terms of risk management, we are actually very focused on risk management in these products. And that's why we are pilot testing it and want to understand all the credit performance first before we roll it out on a gradual basis. And over time, we would want to work with licensed financial institutions in terms of expanding this product. So overall, I think this is consistent with our gradual expansion of our range of financial value-added services to our users as well as to merchants that are using our payment platform. But at the same time, we have very strong focus on the factors that I talked about as well as self-restraint in terms of the overall scale growth because we felt this is actually the ultimate risk control mechanism. Now if we grow this product on a gradual basis, while at the same time, we accumulated a lot of experience and know-how, then the risk management will be done at high-quality way. And this is how we want to manage our financial products going forward.

We will take the next question from Ronald Keung from Goldman Sachs.

I guess first question maybe on the macro and the advertising side that how was our view on the consumption outlook from here now that we've passed the 2 quarters of reopening thus far? If we look at the ad revenue and Video Accounts kind of contribution adding, should we think of a kind of 2-year CAGR growth rate? Should we see further improvement in the rest of 2023 as eCommerce and other parts of the business ramp up? And then a second question, just want to hear how we think about the foundation model AI landscape. If you could share some of where Tencent sees to be and to see kind of where will kind of we see this foundation model mostly be of commercial value to our business, knowing the different regulations, any kind of different players trying to come in and availability of infrastructure and chips, how do we see this business driving our future multiple drivers and the cloud growth into the second half and next year?

So Ronald, on the advertising question, we believe China is experiencing a broad-based consumption upturn. The upturn is not uniform across every category, but it's more pronounced for everyday low ticket price items, more patch sheet for high-ticket price items. Now in terms of how that translates into our advertising revenue, we're experiencing strength basically across the board. So fast-moving consumer goods, eCommerce, finance, online services, health care, travel, all behaving robustly on the weaker side. There are no categories that are notably weak at this point in time. And there are categories such as automobiles or electronic products where the end demand is erratic, but what we can see is that companies in those categories are still very keen to drive sales. And so one of the ways they do that is by advertising on our platform. On your question about the 2-year CAGR, I believe that in the first quarter, the 2-year CAGR for our advertising revenue was minus 2%. So while we don't give guidance, I think the answer to your question, logically should be in the affirmative. As a reminder, in the course of 2021, we began that year with -- our biggest advertiser category was education-related spending, which dropped very sharply during the course of the year. We also lost several important advertising formats such as the full screen ads in our ad network during the course of the year. So the 2-year comparison does get relatively easier for the industry and for us as we move forward over the coming months. So I hope that's helpful on the advertising side.

On the AI and foundation model side, I think you actually asked a lot of questions and it's actually very difficult to answer one by one, but I'll try to pick on some of the key items. So in terms of going forward, we do believe that, number one, there's going to be many models in the market going forward. For the large companies, I think each one of us would have a foundation model. And the model will be supporting our own use cases as well as offer it to the market both on a 2C basis as well as on a 2B basis. And at the same time, there will be many start-ups, which will be creating their own models, some of them may be general foundation models. Some of them may be more industry and vertical models and they will be coming with new applications. I think overall, it's going to be a very vibrant industry from a model availability perspective. And then in terms of applications, I think there will be a lot of different applications. Overall, the user to machine interactions, in particular, search and information generation and those type of applications would actually be more disruptive. And at the same time, there will be more of a rush of applications appearing in those use cases. So general search, vertical search, in terms of content aggregation, a lot of these kind of applications, we see new disruptors coming into play. In terms of the user-to-user interaction type of services like social network and short video network and games, long lead content, there will be -- a lot of usages that helps to increase the quality of content, the efficiency at which the content are created as well as lowering the cost of content creation. And that will be net beneficiary to these applications. Now in terms of -- you asked about regulation. We felt the government's general stance is like it's supportive of regulation, but the industry has to be regulated. And I think this is not something that's specific to China, even around the world. And you look at the U.S., there's a lot of public discussion about having regulation and even the founder of OpenAI has been testifying and asking for regulation in the industry. So I think that is something which is necessary, but we felt under the right regulation and regulatory framework, then the government stance is supportive of innovation and the industry will actually have room for healthy growth. And that availability of chips at this point in time, chips are largely available and there are some workarounds of GPUs that would -- can be sold in China. And I think everybody is actually trying to get supplies. There may be short-term shortages here and there, and everybody is actually clamoring for allocation. But over time, these chips will be available and all the players who want to build foundation models will be able to get the chips to build the models.

We will take the next question from Kenneth Fong from Credit Suisse.

Congrats on the strong results. I have 2 questions. The first one is regarding the gap between revenue and earning growth. I noticed that in our quarter, our earnings have outpaced top line growth meaningfully on the back of Video Account monetization, operating leverage as well as cost optimization. How should we think about this gap over the next 2 quarters, consider all these moving parts and drivers? And my second question is related to the tax. effective tax rate is quite high this quarter, driven by one-off deferred tax of overseas subsidiaries. But we didn't seem to find adjustment in the non-GAAP net profit. So how should we think about this one-off impact in our adjusted net profit, if any?

Yes. Thank you, Kenneth. So as you observed, the gap between revenue growth and non-IFRS net income growth was unusually wide this quarter on a year-on-year basis. On the other hand, if you look at the 2-year CAGR, then the revenue growth and the operating profit -- non-IFRS operating profit growth is basically identical on a 2-year CAGR. So what's the right message to take for looking forward, it's somewhere in between, meaning that the breadth of the gap this quarter between revenue and non-IFRS profit growth was abnormally large because of the low base non-IFRS profit in the same quarter a year ago. And we do expect that gap to narrow as the base effect normalizes. On the other hand, we believe we are a structurally more cost-conscious, more efficient company going forward than we were in the past, which would be helpful for margins. And many of our newer revenue streams, such as Video Accounts, such as monetization of the eCommerce live streaming, such as the Mini Program and Mini game revenue is coming in at relatively high gross margins, which is a positive margin mix shift for us versus in previous years. And we've been generally subject to negative margin mix shifts. So overall, I think that we can aspire to potentially grow profits in line with or faster than revenue. But the delta between profit growth and revenue growth was unusually wide in the first quarter because of the base effect and some of the other factors that we mentioned.

Yes. The deferred tax adjustment is not non-IFRS adjustment. The -- we usually look at the effective tax rate on a yearly basis rather than on a quarterly basis as there are bits and pieces of true-up happening from time to time, including, say, for instance, the time there might be some withholding tax in order as we want to remit more money out of the country as well as adjustment on some of the deferred tax in here. But to give you an overall view of the effective tax rate, we expect that on a non-IFRS basis in the course of 2023, it will be in the range of 18% to 20%.