Tencent Holdings Limited (TCEHY) CEO Pony Ma on Q3 2021 Results – Earnings Call Transcript
Tencent Holdings Limited Q3 2021 Earnings Conference Call November 10, 2021 7:00 AM ET
Company Participants
- Jane Yip – Investor Relations
- Pony Ma – Chairman & Chief Executive Officer
- Martin Lau – President
- James Mitchell – Chief Strategy Officer
- John Lo – Chief Financial Officer
Conference Call Participants
- Piyush Mubayi – Goldman Sachs
- Shaleen Lee – HSBC
- Alex Yao – JP Morgan
- Robin Zhu – Bernstein
- Garret Wang – Citi
- William Packer – Exane
- Gary Yu Morgan – Stanley
- John Choi Daiwa – Capital Markets
- Alicia Yap – Citigroup
- Eddie Leung – Bank of America
Operator
Good day and thank you for standing by. Welcome to Tencent Holdings Limited Third Quarter 2021 Results Announcement Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation there will be a question-and-answer session. To ask a question during the session [Operator Instructions] Please be advised that today’s conference is being recorded. If you require any further assistance, please press. And now, like to turn the conference over to Ms. Jane Yip from
Jane Yip
Tencent IR team. Thank you. Please go ahead. Thank you. Good afternoon — evening, everyone. Welcome to our 2021 first quarter results conference call. Before we start the presentation, we would like to remind you that these forward-looking statements, which are underlying by a number of risks and uncertainties and may not be real life in the future for various reasons. Information about general market conditions is coming from [Indiscernible] at Tencent.
This presentation also contains some audited non-IFRS financial measures that should be considered in addition to the — as a substitute for measures of [Indiscernible] financial performance, prepared in accordance with IFRS. For a detailed discussion of risk factors and non IFRS measures, please refer to our disclosure’s documents on the IR section of our website. Let me introduce the management team on the call tonight. Our Chairman and CEO, Pony Ma who will kick off with a [Indiscernible] of the wheel. President Martin Lau, and Chief Strategy Officer James Mitchell, who will provide a business review. Chief Financial Officer, John Lo, will conclude with financial discussion. Before we open the floor for questions. I will now turn the call over to Pony.
Pony Ma
Good evening. Thanks, everyone for joining us. During the third quarter, the Internet industry, including the dramatic [Indiscernible] industries, and certain advertiser categories, adapted to new [Indiscernible] macro-economic developments. We are proactively embracing the new regulatory environment, which we believe should contribute to a more sustainable development path for the industry. In the domestic gain market, our industry is leading efforts in fully compiling with new regulations significantly reduced minus gain time and spending for clean, healthier game play involvement.
We also invest actively in key strategic areas, as well as in frontiers of technologies, along with making new commitment in common prosperity initiatives. Looking forward, we are committed to delivering superior experiences to users assisting enterprises to digitalize their operations and contributing to this society at large. Starting from this quarter, we closed revenue from Domestic and International Games as a new sub-segment under VOS, reflecting the increasing scale of our international games business. Now let me go through the headline number — financial number for the quarter. Total revenue was $142 billion R&D, up 13 % year-on-year and 3 % quarter-on-quarter. Gross profit was RMB 63 billion, up 11 % year-on-year and stable quarter-on-quarter.
Non – IFRS operating profit was RMB 41 billion up 7 % year-on-year, or down 5 % quarter-on-quarter. Now on our IFRS net profit attributable to equity holders were $32 billion, 2 % year-on-year in 7 % quarter-on-quarter. Moving to our key services. We focus on upgrading technologies and product innovation. Maintaining our first offsite [Indiscernible] market positions across key businesses, including social, gained, digital content, payment, and public Cloud Services. Combined, MAU of wheezing and WeChat was $1.26 billion. Mobile devices MAU off QC was $574 million. Now, I will hand over to Martin and James for the [Indiscernible] review.
Martin Lau
Thank you, and good evening — good morning, everybody. For the third quarter of 2021, our total revenue grew 13 % year-on-year. VAS represented 53 % of our total revenue within which domestic game subsegment revenue was 24 %, international game subsegment was 8 %, and social networks subsegment revenue was 21 %. Online advertising accounted for 16 % of our total revenue. And FinTech and business services was 30 % of total revenue. For value added services, segment revenue was $75 billion RMB for the third quarter, up 8 % year-on-year.
Social networks SAP segment revenue increased 7 % year-on-year to RMB 30 billion, reflecting relatively rapid growth from video and music subscriptions and moderate growth from live-streaming and in-game item sales. Total VAS subscriptions grew 10 % year-on-year to RMB 235 million. Video subscriptions increased 8 % year-on-year to an RMB 129 million driven by popular dramas series. For example, our self-commissioned TV drama, crime crackdown, as well as Honor of King’s tie in You are Mike glory ranked number 1 and number 2 by video views across all online platforms in China for the quarter, broadening our user mix in terms of gender and age. The success of this series demonstrated our progress in content production and cross-media IP extension. Music subscriptions increased 838 % year-on-year to 71 million as more users are attracted by TAM and enhanced streaming experience.
Looking at our games business, for domestic games, revenue grew 5 % year-on-year to $34 billion RMB, primarily driven by on of King’s, caught up duty mobile, and Moonlight blade mobile. Revenue grew sequentially due to seasonal activities in Peacekeeper Elite and Dungeon and Fighter. For international games, the revenue increased 20 % year-on-year to 11 billion RMB, a 28 % in constant currency terms, benefiting from robust performance of diluent and classic plans. Moving to Weixin, we continue to strengthen its content and commerce ecosystems. In video accounts, we’re fostering rich and diverse content.
An increasing number of content creators from official accounts now express their ideas in video format, contributing to a differentiated set of content in video accounts. Our strength in sports coverage, music, and games also enriched and diversified our content offering. Video consumption grew healthily as we proactively enhanced content and recommendation technology. For mini programs, we’re deepening penetration across industries, including restaurants, retailing, and transportation. The number of active mini programs increased by over 40 % year-on-year. Testifying to the vibrancy of the commerce ecosystem. By integrating WeCom’s enterprise communication tool with mini programs, we’re unable to direct interactions between individual sales person and customers in retailer’s private domain environment.
As a result, retailers can foster their own customer relationships, and drive sales efficiently. For QQ, in our last upgrade for QQ, we have been stepping up our efforts and technology on the interactive side. We enhance video and AI technology is to facilitate creative and efficient content production driving more UGC activities on our platform. We customized [Indiscernible] with festivals and national landmarks, adding more engaging experiences for users to interact with the physical world. We also provided cross-screen interacted effects in video call, upping more entertaining, shared experiences. Through these upgrades, we make users interaction in QC more exciting and immersive. Turning to games, 1.
First on Domestic Games, who believe fostering a healthy game-play environment for domestic market is of paramount importance. Since September 1st, we have implemented new measures to fully comply with the latest regulations on restricting minor’s game time in China. Subsequently, users under 18 years old accounted for 0.7% of our domestic games time spent in September, reduced significantly from 6.4% in the same period last year. In addition, these users accounted for 1.1% of our domestic game’s gross receipts in September down from 4.8% in the same period last year. We continue to lead the industry in compacting minor’s usage of adult accounts.
For example, we upgrade our screening systems to identify misused adult accounts around the clock. We also proactively assist authorities in cracking down on illegal account transactions. Looking at the highlights of our Games business. For A-N-A-B kings, we’re bringing to life Chinese culture with a series of popular skins which successfully transmitted provincial arts, and traditions to a wider audience. We made significant progress in expanding successful PC franchise to mobile. While dripped successfully reactivated an enlarged League of Legends user base by extending the authentic PC experience to mobile devices. In October 2021, it ranked second by DAU among all mobile games in China.
We also invigorated to auto [Indiscernible] genre by introducing PBB and core gameplay in fight of the Golden Spatula. It is the second most popular new game launch in China year-to-date by DAU. Only behind [Indiscernible] For international games, we have been developing our business for more than a decade now and its scale relative to our domestic business has been increasing over the last few years. We do expect exciting opportunities ahead in the Global Games industry. As we discussed in our investment strategy with you earlier this year. In order to further develop this high-growth business, firstly, we enhance our upstream game development capabilities.
We’re increasing investment in talent and leading studios. Our China base d studio groups, especially TIMI and Lightspeed are scaling up with new talent hires not only in China but also globally. [Indiscernible] which have developed multiple hit games, are also ramping up their development teams. In the meantime, we are acquiring and nurturing specialist genre-leading studios, such as [Indiscernible], Grinding Gear Games, and flat shock, to name a few. And we nurture them with our know-how technology and funding. Secondly, we are strengthening our global IP portfolio with multiple strategies. Internally, we extend our globally recognized IP, such as Live Legends, Clash of Clans, as well as Honor of Kings to mobile and to additional genres. Expanding our addressable market.
We’re also creating games with the potential to become new global IPS, such as Diluent and Brastars. Externally, we partner with renowned IP owners to develop mobile games with global appeal, such as Pop T-Mobile, Call of Duty Mobile, and Pokémon Unite, and there are more to come. Thirdly, to support our expansion in multiple regions, we’re building up localized publishing and operational capabilities. We’re also stepping up our marketing efforts in eSports operations to foster player communities. We’ll continue to step up our investment in our international games business. Now with that, I’ll pass to James to discuss other businesses.
James Mitchell
Thank you, Martin. Moving to online advertising. Other revenue was 2.5 billion revenue in the third quarter. Revenue growth slowed to 5 % year-on-year due to weakness from the education, insurance, and games sectors, while consumer staples, internet services, and automobile sectors remained resilient, overall bidding density reduced. We expect advertising pricing industry-wide may remain soft for several quarters due to macro challenges, and regulations affecting certain key advertising section. Beneath the advertising industry should adjust, and re-base during 2022, then resume growth — the secular growth drivers reserve themselves. Searching and others advertising revenue increased 7 % year-on-year to $19 billion renminbi, primarily driven by Weixin mini programs and official accounts, although slowed by weaker [Indiscernible] [Indiscernible] networks.
We’re enabling enterprises to connects users with salespeople via embedding WeCom sales person functionality within their advertisements, which is especially effective from need-driven advertisers such as automobile DDOS. An increasing non-prop, transaction-driven advertisers such as grocery e-commerce merchants, use many programs is there outs landing pages, which helps them better convert traffic into transactions. media advertising revenue declined 4 % year-on-year due to less revenue from the Tencent news app.
On the positive side, we streamed top-tier drama series, variety shows, and the Tokyo 2020 Olympic Games, generating in previous sponsorship revenue on Tencent video app. Looking at FinTech and Business Services, segment revenue was RMB 43 up 30 % year-on-year and up 3 % quarter-on-quarter, with [Indiscernible] purposes year-on-year revenue growth was mainly driven by increased commercial payment volume with healthy growth in categories such as groceries, and powered on transportation. Commercial payment daily active users, and per-user transactions both increased. Compared to the second quarter of 2021, offline commercial payment volume growth moderated on a year-on-year basis due to control measures against COVID-19 resurgence in certain provinces.
We deepened our cooperation with UnionPay to develop new payments and service interconnection scenarios. Users can now scan Weixin Pay QR codes via the UnionPay cloud quick costs app to make offline payments and Cloud Quick parts also supports top-up purchases for QQ points, QQ music and Tencent video subscription services. The business services revenue grew at a healthy rate year-on-year benefiting from continued digitalization, traditional industries such as Financial Services, and Transportation, as well as videolization of the internet industry.
We see substantial potential in China’s under penetrated customer relationship management market. Our CRM Software-as-a-Service solution, $0.10. [Indiscernible] has helped more than a million enterprises to enhance cost efficiency and customer service, and is increasingly adopted by medium and large-scale enterprises including Dell, SF Express, and Siemens. Clients can automate 80 % to 90 % of their customer service workloads via the virtual assistance leveraging our AI -powered solutions across chat, voice, and other communications channels.
Our Tencent database Structured Query Language platform as a service solution will TDSQL database has served more than 3000 clients from verticals, including financial services, public services, and telecom. Within the financial vertical, we see increasing demand for upgrading database architecture with enhanced security protection. TDS-SQL server 6 out of the top 10 banks in China, and increase its penetration within financial institution’s core systems, due to their trust and our data security, reliability, and consistency. I’ll now pass to John to discussed the financial review
John Lo
Thanks, James Hi, everybody. For the third quarter of 2021, total revenue was RMB 142.4 billion, up 13 % year-on-year or 15 % quarter-on-quarter. Gross profit was 62 blood sets a bit in renminbi up 11 % year-on-year or broadly stable quarter-on-quarter. Net other gains were RMB 23 billion, up 99 % year-on-year, or 11 % quarter-on-quarter. This mainly comprised [Indiscernible] adjustment relating to our investing companies, including, 1. Number one, Team disposal and disposal gains of our investee companies. I sector such as Gins, Internet Utility, and Local Services. 2.
Number two, revaluation gains of certain investee companies in verticals such as E-commerce. 3. Number free, impairment provisions for investing companies in verticals such as FinTech and social entertainment. Operating profit was RMB 53.1 billion, up 21 % year-on-year and 1 % quarter-on-quarter. Net finance costs were RMB 1.9 billion, largely stable both year-on-year and quarter-on-quarter. Share of losses of associates and joint ventures with RMB 5.7 billion compared to share profit of RMB 2.6 billion last year. The movement reflected the impact on non-IO VAS, adjustment of certain associates.
Increased investment in community grew by initiative by certain associates, as well as losses recognized from certain associates in the social media factor, partially offset by enhanced performance of certain associates in the e-commerce sector. On a non-IFRS basis, we record ed shared losses of RMB 282 million this quarter for associates and joint ventures compared to share profit of RMB 3.2 billion a year ago. Income tax expense was RMB 5.5 billion this quarter. Effective tax rate for the quarter was 12 IFRS net profit attributable to equity holders was RMB 39.5 billion, up 3 % year-on-year, or down 7 % quarter-on-quarter. Diluted EPS was RMB renminbi, up 3 % year-on-year or down 7 % quarter-on-quarter. Now, I’ll share with you our non-IFRS financial figures.
Operating profit was 40.8% in renminbi, up 7 % year-on-year, or down 5 % quarter-on-quarter. Net process up the NCI was RMB 31.8 billion, down 2 % year-on-year and 7 % quarter-on-quarter. Diluted EPS was RMB 3.269, down 1 % year-on-year, and 7 % Q-on-Q. Moving on to gross margin, the overall gross margin was 44.1% down 1.1% points year-on-year and 1.3% points quarter-on-quarter. Breaking into segments, gross margin for value-added services was 53 % up 0.4% for year-on-year for lastly, stable Q-on-Q. Rough margin for online advertising was 46.4% down 4.5% on year-on-year or 2.4% points quarter-on-quarter. Both year-on-year and quarter-on-quarter decrease reflected increased bandwidth and server costs including those associated with our video accountants.
Gross margin for FinTech and business services was 28.5% up 0.6% on year-on-year, or down 3.5% points quarter-over-quarter. The year-on-year increase was driven by mix shift. We’ve been since acceptances, partially offset by [Indiscernible] revenue contribution from lower margin businesses. This sequential decline mainly reflected our continued investment in cloud computing, including [Indiscernible] and operations. On operating expenses, selling and marketing were RMB 10.4 billion, up 17 % year-on-year, or 4 % quarter-on-quarter.
The 11 increase was really recent. Marketing spending on gains, as well as consolidation of bit up-sold. As a percentage of revenues, selling and marketing expenses were 7 % of revenues broadly stable compared to the first quarter of 2020. R&D expenses were RMB 13.7 billion, up 39 % year-on-year, or 7 % Q-on-Q. R&D expenses represented maybe 10 % of revenues. G&A census including R&D were RMB 10.2 billion up 39 % year-on-year, or 3 % quarter-in-quarter. Both year-in-year and quarter-in-quarter increase reflected [Indiscernible] force, excluding share-based compensation, G&A expenses increased by 23 % year-on-year and 7 % quarter-on-quarter.
As the quarter end, we had approximately the 107,000 employee, 38 % year-on-year or 14 % quarter-on-quarter, primarily due to our increased resources allocated to our strategic growth initiatives. Let’s take a look at the operating and net margin ratios. For freak 2021 non-IFRS operating margin was 20.7% down 1.7% points Y-on-Y points Q/Q. Non IFRS, net margin was 22.83%, 0.8% points year-on-year, or 2.6% points quarter imperfect. Finally, I will share with you some key financial metrics for the quarter. Total Capex was RMB 7.1 billion, down 19 % year-on-year or up 2 % quarter-on-quarter Within total Capex, operating handbags was RMB 5.6 billion down 28 % year-on-year.
Though an operating Capex increased 62 % year-on-year to RMB 1.5 billion, reflecting highest spending on [Indiscernible], yielding constructed. Free cash flow for the quarter was RMB 24.1 billion down 14 % year-on-year, or up 40 % quarter-on-quarter. Net debt position was RMB 26.1 billion. compared to RMB 21 billion last quarter, mainly reflecting cash flow for M&A activities and payments for repurchase of shares, partly offset by free cash flow generations and on market [Indiscernible] subsidiary this to securities. The Share market value of our shareholdings in listed invested companies excluding subsidiaries, was approximately $1.2 trillion, Renminbi or $185 billion U.S. dollars as at the end of the quarter. We repurchased approximately 5.6 million shares with an aggregate cost of RMB 2.2 billion or $334 million for the third quarter 2021. Thank you. We shall open for questions.
Jane Yip
Operator please invites for the question.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions]
Operator
[Operator Instructions]. If you wish to withdraw your request, [Operator Instructions]. Please stand by while we compile the question and answer roster. [Operator [Operator Instructions]. Your first question comes from the line of Q – Piyush Mubayi from Goldman Sachs, please ask your question.
Piyush Mubayi
Good evening, Martin, James, John, and Jane. And thank you for taking my question. My first question is about the buzzword that’s floating around so many times now days, how would you assess your positioning in the Metaverse, the next iteration of the internet? Do you see this as transformational or an extension of your current business models? And how would you size the opportunity, versus the current estimates of the gaming industry that are north of $200 billion U.S. dollars? And if I may slip in the second one on advertising, in light of the pricing challenges that you talked about, where China macro PIP L and regulations all appear to be headwinds.. How do you rank these sets of risks? And with regards to your comment on a re-basement in 2022, could add growth rates get back to double-digit growth rates sometime in 4Q or would it be sometime in 2022 in your opinion.? Thank you.
Pony Ma
On Metaverse, I think this is actually a very exciting, but a little bit vague concept. The way we look at matters in terms of — at a high-level result. We felt anything that really makes the virtual world more real and making the real world richer with virtual experiences that can actually become part of the metaverse, big word. And as a result, we felt it’s going to be an opportunity that really add the growth to the existing industries.
Martin Lau
For example, it will be an addition to the gaming industry, it will also be an addition to the social networking industry, and in some cases, when, when you have real life applications like business applications, applications, it actually also can be a growth engine for that industry too. And the reason is we felt that they are actually multiple pathways through which you can actually get into the matter, whereas opportunity, for example, you can have a very Interactive games, very high production, and open world type of games. You also can have multiple games under a common wall view or IP.
You can have a gaming platform that provide the infrastructure for people to create a lot of different games within the gaming platform. You can have a social network, which can be gamified and support much more programmable experiences. You also can have a real-world experience but augmented by augmented reality and virtual reality. So that’s sort of how we think about the different pathways through which you can get to metaverse. Now, in terms of our capabilities and our positioning, we felt we actually have a lot of the technology and know-how building blocks for us to explore and develop for the amount of various opportunities.
For example, we have a lot of gaming experiences. We also have very strong social networking experience. In addition to that, in terms of technology beginning blogs, we have engine capability, we have AI capability, we have the capability to build large server architecture that can serve a huge number of concurrent users. We’re very experienced in managing digital content economies, as well as real life digital assets. So, all in all, we felt that we have a lot of tech and capability building blocks that will allow us to approach the Metaverse opportunity is through the multiple pathways we talked about.. Now with advertising, I would pass-through James.
James Mitchell
Thank you, Piyush. You asked about the various challenges facing the China advertising market and how we would rank them. So, I think that in terms of size and immediacy, the regulations affecting industries such as education, the games, insurance, have the most substantial and faster impact, and then the macro-environment is also impactful in that — in very robust macro-environment and [Indiscernible] expect certain categories, slow advertising spending, other categories will leap into the gap and sort of backfill and take advantage of the lower prices and higher ROI.
Since — I think that will happen over time, but in a more challenging macro environment, it happens less quickly than in a more robust macro environment Then in terms of the customer information protection law, and also you didn’t mention it, but other people may want Apple ‘s IDFA changes. [Indiscernible] less impactful for the personal information protection goal, we implemented that as of November 1st and it is important to remember that people who choose to opt-out, still see ads.
It’s just the ad are less relevant to their needs. And we think that as a consequence, at least up till now, the opt-out rate has been very low single-digits. And then for IVFA, you may be aware that in the U.S and Western markets, there was effective issues that drops the first one was, impact targeting ability, and then the second more impactful issue was impaired attributions ability. In China, we’re into, the targeting challenge and the attribution challenge appears less, partly because the industry has a variety of mechanisms deriving attribution and partly because Apple only represents a teens percent of Internet traffic in China versus a much higher proportioning western markets so that’s in terms of sizing, prioritizing, and various challenges.
In terms of timing when advertising may resume a faster growth rate than, obviously, it depends very much on any future regulations that emerges, as well as any future macro challenges that emerge. Putting those to one side, then a couple of observations, one is that I think our advertising comps are generally toughest in the first quarter of next year. In a normal year, the first quarter is seasonally low quarter and then you see very strong sequential advertising revenue growth in the second, third quarters versus if you took that 2021 that actually wasn’t the case. So, we have a tough comp in first quarter ’22 than [Indiscernible]
And then secondly, while there are a number of categories that are weak and they tend to be the categories would normally react [Indiscernible] and lower pricing by increasing in their volume. There’re other categories that are still quite robust, including clothing, personal goods, healthcare, and so forth. Now, I believe, in general, these categories react more slowly. They make more human being driven, [Indiscernible] buying decisions rather than the algorithmic [Indiscernible] buying decisions that Mobile getting more online education Company might, but it’s a reality that because pricing has softened, therefore the ROI from finance has improved. And so over time we would expect some of those slow-moving advertising categories to reassert themselves. Thank you.
Operator
Our next question comes from Shaleen Lee from HSBC. Please go ahead.
Shaleen Lee
Hi, management. Thank you very much for the opportunity and for taking my question. I guess, I want to follow up on the plane that James was making, I think earlier on you discussed some of the challenged verticals that use education, games, and insurance, and whatnot. I was wondering if you can share a little bit more on how much do these verticals contribute to the advertising business? You also mentioned that we’re seeing some green shoots, perhaps in segment like healthcare, are these — how much can they really make up for? I guess the weakness as that we’re seeing in some of the challenged verticals that you discussed earlier. And I have a follow-up for online games. Thank you.
James Mitchell
Likely off the weakness we commented that we expect weakness to persist for several quarters. So, I want to emphasize the adjective separately. This is not something that we believe will return to prior trends immediately. In terms of how much those categories contributed, then directionally speaking, Games [Indiscernible] mid teams. Education has dropped to low-single-digits now, and insurance is a subset of finance, but again with the low-single-digit percentage. In terms of categories that are relatively healthier than financial services X insurance, in a [Indiscernible] products and [Indiscernible] food and beverage.
For us, our transportation-related advertising is very strong and in part, reflects the reinvigoration of bid oughta when the injection of video content [Indiscernible] stop share of automobile related advertising. And then Healthcare. But as I mentioned, these categories tend to make their decisions on an annual or quarterly basis rather than a real-time basis. And so, when advertising pricing softens as it’s done., they don’t react immediately.
Shaleen Lee
Okay, great. I think on the online game s front, in particular for overseas expansion, can you discuss what are some of the challenges you may anticipate amidst our overseas expansion efforts for online games? And can you also share some details on the pipeline? Thank you.
James Mitchell
By in terms of the pipeline, both in domestic and the international business, we tend not to talk about games until that launch, or at least until they’re very close to launch, but just looking at the slide and thinking about what’s been publicly announced. TiMi and Lightspeed both announced a number of titles with which a global IPs and you should expect to be released globally. They also have some other titles which are their own IPs which we also hope will succeed globally.
Although time will tell whether that’s the case or not in a riot has announced a number of games, including the Mobile version of Valorant. Supercell has announced three flash-based games. Grinding Gear Games has announced, part of XL 2. Fat sharks announced Dock Tied, so on and so forth. None of our studios are sitting still. A lot of them have new products in the pipeline and some of them announced products, some of them unannounced products, and therefore, a little bit further away. In terms of the challenges we face, I think that they’re pretty similar to the challenges that other companies in the game industry face.
Just to touch on to the front of mind at the moment, one is the war for talent. We believe that the game industry is really a talent driven industry. And so, we spend a lot of time at our own studios and also working with our investing and [Indiscernible] studios working on the most appropriate compensation plans. And each situation is a little bit different, but in general, we want to [Indiscernible] in a position where they can — and reward the people who contribute very handsomely. And we think with and see what we can remain in that good position going forward because it is something we spend a great deal of time and energy on.
Another issue for the game industry that’s fronts of mind is the fact that for the industry as a whole, in mobile games, the app stores take a bigger profit pool than the game developers do, and I think there’s a number of pressures from a regulatory perspective, from a legal perspective, and giving some announcements today. The Internet have direct bearing on how that profit pool is split between App Store, versus Game developer’s that should be helpful for game developers in general, and especially for some of the smaller game developers. So those are two of the challenges that the game industry outside China faces, and that we would also face as a participant.
Operator
All right. Thank you. Our next question comes from Alex Yao from JP Morgan. Please ask your question.
Alex Yao
Thank you management for taking my question. I have a — first question is a follow-up on the implementation of [Indiscernible]. You you’ve mentioned that they’re up to [Indiscernible] is quite slow, perhaps around low-single-digit. So presumably the impact on your own property, advertising [Indiscernible] should be quite some more. How about the impact on your network business? Can you share some color? And then secondly, regarding domestic gaming operation, how will the current game monetization approvals of [Indiscernible] change your gaming operation in the product launch strategy in the next couple of quarters. Thank you.
James Mitchell
We haven’t yet published. And given historically, we typically publish mid-single-digit number of new games each quarter than you can see that we have a backlog that will keep us busy for many quarters to come. Obviously would be [Indiscernible] the industry as a whole. If some blend as defined, how issuance resumes, in terms of bringing more innovation to market, but I think you can see that between our [Indiscernible] existing games, between some of the great high DAU, new games we’ve recently launched and our several dozen games with Van Hall (ph.) that we haven’t yet launched.
We think we can navigate through this temporary period and get up and move forward, so there I already emphasized the temporary nature. In terms of the question around the app networks. So, to clarify, our app network pricing was weaker in the third quarter, but that was due to a combination of the demand factors that we’ve talked about in terms of recognition for certain sectors, macro challenges. And then on the supply side, the limitations on Serco flash screen advertising had a bigger negative impact on the ad network business than on our own operated inventories. PIPL didn’t investment have substantial an impact as those two factors
Operator
Thank you. Our next question comes from the line of Robin Zhu from Bernstein, please ask your question.
Robin Zhu
Hi, management. Thank you for letting me ask the question. Just 2 questions, please. 1. On which many programs and e-commerce GMV growth there and the outgrowth there; are you guys very hopefully to share some data in the last couple of quarters, and get an update on what’s going on there, and how that’s contributing to the advertising growth, and whether you expect any of the — whether it’s regulatory or IPO or something else, to impact growth in the next couple of quarters. And second question, just on the broader regulatory environment, I mean, it seems optically that the rates of new announcements has slowed somewhat. Last quarter, [Indiscernible] last Square and management said that, look, there’s still plenty of stuff to come in on the regulatory front. I wonder if that view has changed as of this quarter. Thank you.
Martin Lau
So, on Mini Programs, in terms of GMV and ads growth, I think that the overall message we want to tell you is it remains healthy and strong. We don’t want to make this a permanent item to disclose, and as long as the trend is intact, we don’t talk about the specific numbers this time around. In terms of the ecosystem, this time around we actually tried to provide you with additional color regarding the diversity of the ecosystem.
And you can see the number of Mini Programs has actually increased 40 %, which means that it’s actually a very vibrant ecosystem covering increasing number of different industries and types of applications. And this is exactly one of the key drivers behind the strong growth of GMB a nd [Indiscernible]. So that’s what would you want to share with you this time around. Now, on the 2nd question, maybe, James can answer.
James Mitchell
This is customers around the overall regulatory environment and, I mean, actually Martin ‘s probably better —
Martin Lau
Is it the overall?
James Mitchell
Yes, overall regulatory environment.
Martin Lau
So, the overall regulatory of Ibrance, I would say — last time we were asked about this question and our answer is that there will be more regulations coming in. I think we have been proven to be right. And we have seen more regulatory development over the last few months. And we also believe that a stricter regulation is a new normal for the entire industry. And that’s not just for China, but also globally. But we do want to emphasize that the rationale behind the regulatory push is actually, especially in China, is really — the government trying to drive higher-quality and sustainable and healthier growth for the entire industry with a focus on consumer rights and privacy protection.
So that’s the reason why we are proactively working with the regulators on implementing all the necessary changes, and we expect to — once the industry has really complied with the new regulations, have made all the adjustments, then even what new regulations come around in the future, which by nature, if there has been already a lot of regulations and the regulations in the future on an incremental basis will be smaller in terms of percentage -wise and as the industry adapted further, then the impact on the industry will be less and less over time. That’s what we felt.
Operator
Thank you. Our next question comes from Garret Huang from Citic. You can go ahead.
Garret Wang
Hello. Thank you for taking my question. I’ve two questions, the first one is brought accounting development strategy for which we do count. Just — as you mentioned, that the Tencent cross IP strategy has achievable success, so I think that tends to do better in data is Comtech cannot surprising a very short time.
How the WeChat middle account could benefit from TME or Kennel literature or the e-sports. How this Tencent’s unique content advantage can empower the development of the video show — video account, and on the other hand, how do we do account distribution, revenues and feedback. Tencent’s content the system. So, and the second one is about the changing internet. Last week, the Tencent digital ecosystem meeting just held. And also, the changing, you might have mentioned a lot. I mean, how is the changing internet strategy, and how is the progress and business model? And this [Indiscernible] So I hope the management share more about the changing net. Thank you.
Martin Lau
Quickly on video accounts, I think the key point I would like to make is that a video account is a product that has seen very healthy growth and it started off to be from nothing right now and has grown to a relatively sizable product. But it’s still relatively young. And in terms of being a short video platform, it’s actually much smaller than the market leaders at this point in time. But having said that, right now we are encouraged by the development of our video concept because it has a pretty unique content. There are a lot of official accounts, content creator who are now sharing their knowledge on video accounts. We are particularly strong in terms of knowledge-based short video, and we also have a lot of other areas of content which are quite unique.
For example, sports when during the Olympics, we — our video accounts actually cross benefit with our sports channel and was able to generate a lot of video views from users on the Olympic Games. For now, we felt they are encouraged by the development so far of the video accounts and also the trend of its growth. And we felt at this point in time, the most important thing for us is actually to continue to enrich the content ecosystem and also keep on improving our recommendation technology so that we can actually allow more users to come into contact with more content, and as a result, the amount of time that people actually spend on a video accounts would actually increase.
And once that’s done — right, when that has reached even further scale, then I felt a lot of the cross benefits that you talked about, for example, with music, animation, comics, eSports, would actually come into play even more. At this point in time, I think the key focus for us is actually keep on scaling our video accounts in a sustainable and a healthy way. Now, in terms of the trends and Internet, I think it’s partly using our technology to actually make the real-world experience enriched with virtual experience. And also leveraging virtual technology to actually help real life simulations. So, it’s — I think a lot of the core logic is actually similar to what we answered on the Metaverse so I would refer you to the answers that we provide on there.
Operator
Thank you. Our next question comes from the line of Q – William Packer from Exane, BNP Paribas. Please go ahead.
William Packer
Hi, management. Many thanks for taking my questions. Firstly, on the domestic gaming regulatory fronts, the key focus so far has been limitations on the game play and spend by minors and gaming approvals. As regulation evolves, do you think we should expect restrictions on adult’s time will spend on video games? And just as a quick follow-up, we’re seeing an opening of the various platform ecosystem, including headsets on increased interoperability. Can you talk through the key positives and negatives from a financial perspective of these developments? For example, increased adult payment revenue opportunities, increased competition for engagement. Thank you,
Martin Lau
William, on your first question, we believe that up till now the public concern around the game industry has been very largely concentrated on the issue of whether children are spending too much time in games, and the recent regulations
James Mitchell
address that head on and what we believe very effectively, so the short answer is no. We don’t expect the scenario you envisage — the longer answer would be that we think it’s actually very beneficial for our country to have a robust presence in the gaming industry in both from a sort of technology perspective, but also from a cultural perspective. From a technology perspective in terms of being really the cutting edge, in driving the cutting edge of some of the most interesting hardware innovation. So, for example, games are the reason why computers have yet graphics processing units separate from the CPU, and it is the GPUs that is today being used for training and influence artificial intelligence at a software app or any games have customized that utilization of services like Unreal Engine, which are today proliferating across enterprise.
And of course, supporting the immersive internet as well. And then into talent level, some of the highest profile, most successful individuals in the technology industry globally like an Elon Musk or Mark Zuckerberg have spoken about the enjoyment of games when they were young and how did that set them on the path in the technology industry and the success that they enjoy today. So that’s from a technology industry perspective. From a cultural perspective, the U.S is in a very happy position where — because of Hollywood, the U.S. can export American culture globally through attractive [Indiscernible] In Korea, it’s now in a similar position with TV series. Japan is in a similar position with [Indiscernible]
And so, Games represent in one of the only opportunities a country. Which historically haven’t been initially global. Participants in-house should expect exchange to become that. And you can see that today if you look at the top 100 games in Japan, I think 30 come from China of the mobile games. For the top 100 mobile games in the U.S, 20 something come from Chinese companies. So anyway, we think that it’s advantageous to society on multiple levels for there should be a thriving and robust game industry, assuming that the game industry can control adjacent issues, such as children playing games too much, which we believe the China game industry is now doing.
Martin Lau
In terms of the interoperability among different platforms, I think we actually provided a very long answer last time regarding our philosophy on the ecosystem consideration. But I would say a few things. One is, as you said, if there’s more interoperability and more openness in terms of the different deployment, we felt it could be good for our business in particular, with respect to payment and ads business. And the reason is, we are the Company that probably has got the most engagement, but the least monetized engagement. And if there are more other platform sending us more commercial activities to us, then there could be financial benefits.
But I think — we look at this issue from more of the key considerations regarding 1) user protection, 2) information and content compliance, and 3. The impact on the ecosystem. Now, in terms of use protection, if there is a very big platform with a lot of users and there’s also commercial interest involved in sending to another platforms of users. There could be a spamming that could happen, and that’s something we actually tried to protect quite carefully. And if there are people sending messages to another group of people then you want to balance the interest for the sender versus the receiver, and especially if one sender actually sends to many receivers, and then it’s typically called spamming and it could actually cause a lot of user [Indiscernible] damage.
So that’s one aspect, the 2nd aspect is actually information and content compliance. When you have a platform which actually manage millions of suppliers on the other side, and when it sends a message or a content over, then whose responsibility is to ensure that the content and information is compliance with law and regulations. It maybe regarding news and fictitious news, it may be about counterfeit products, so these are very difficult issues. If you have a single merchant then it’s much easier to police, but if it’s a platform with millions and tons of millions of merchants on the other side, and it’s much harder to police. And finally, it’s an ecosystem; we kept on saying our ecosystem is fundamentally open and we do prioritize to provide support for SMEs and brands to succeed.
So that’s why when you have another platform with different platform regulations and economic models coming in, then it may be damaging to the ecosystem of a lot of the small and medium enterprises within our platform, and that’s something that we pay a lot of attention to. So, I would say we’ll continue to proactively explore cooperation with other platforms, but it has to be in a manner that addresses the use of protection point that information and content compliance point, as well as it has to be beneficial to the ecosystem, especially for the small and medium enterprises that are on our ecosystem.
Operator
Thank you. Our next question comes from Gary Yu from Morgan Stanley. Please ask a question.
Gary Yu
Hi, thank you for the opportunity to ask questions. I have two questions. The first one is regarding your strategic investment, which you mentioned in the first quarter earnings, how should we look at the impact on SG&A trends going into next year? Should we continue to see increasing levels investments, or will be able to start to see more normalized margin trend going forward after this year of step-up in investment.
The second is a follow-up on matter first, you mentioned about the opportunities that maybe Tencent ‘s position in this space. How should we look at some of the key hurdles in the next couple of years? [Indiscernible] is from the technology front. In terms of hardware, is there something that we look into investing to [Indiscernible] hardware development. The secondary goal is on regulatory front, how should we look at regulatory stance in terms of metaverse, given the heavy focus on the addiction issue on the games side of the world. Thank you.
James Mitchell
I’ll talk about strategic investment as well. Martin answered that the additional [Indiscernible] question. So, I think that we are a Company that invests aggressively for the future. And since we are optimistic about the future, we’re investing optimistically and aggressively and that’s reflected in our rapid headcount growth, and that’s also reflected in rapid SG&A expense growth within the SG&A expense growth, it’s worth in separating the headline number which includes stock-based compensation from the cash number.
Now, in terms of how this trend would evolve going forward, then, I think we’ll — time will tell, but I think the opportunities with them to get bigger and brighter in the future, and therefore, we’ll continue to invest in the future, and therefore the variable is not, do we our rate of investment, it’s rather, how quickly with our various investments translate into revenue and margin.
And going through the three specific strategic carriers that we talked about at the first-quarter results, then I think our investments in business services, for example, and enterprise software translate into revenue on a measured basis, but there are some products we have, typically the smaller ones, that are already monetized, but because there are subscale, there are a lot of margin, there are other products we have, such as WeCom, such as Tencent Meeting, such as Tencent Documents which were very substantial scale, and we’re not yet monetizing, but we’re confident that when we do they’ll generate attractive margins. So that’s on the business services. Then for the games, we have an increasing number of games released each year.
And moving from 2022 and 2023, particular increase in Triple A games and that reflects the sizing of headcount that a number of our key studios in the last few years and the development cycle for these Triple A or high production value games. And so, the success of those AAA budget games as we move through ’22 and ’23 will — to determine that the margins for the game industry to some extent.
And then third, for short video, our bandwidth costs have been increasing quite quickly this year, and one of the drivers for that has been a step-up in consumption of short video particularly in [Indiscernible]. And so, currently we monetize short videos at a moderate rate through the interactive features. As a brand we insert advertising into the shipping haul then I think that will have an impact on the margins and the profile of that investment cycle.
Martin Lau
In terms of matter verse, I would say its still early days, so there will be a lot of challenges. There’s a lot of uncertainty. So, the future would be very exciting, but then the way through which it will be realized will probably be taking longer than people expected, and would probably need a number of iterations, and I would say that the key challenge is really — as we discuss about the multiple pathways to get to metaverse, then it’s really what is the most attractive user experience in each of the pathway.
And this is the most important question to answer, if you don’t answer that question, and just try to take the word, then it’s hard to come up with the product, and crystallize the product that attract people. And the other one is really, in order to realize such distinguishing and engaging user experience, or what’s the technology that’s actually needed. But we do believe that the driving force will still be software-driven, and the technology that really help us to provide the user experience. Be it engine technology, be it the ability to provide better real experience, high-fidelity experience across many — a large number of concurrent users. AI technology for example in order to customize the different experience for different people.
There’s a lot of these technologies which are really software-driven. So HeartWare will probably be an assisting condition, but not the necessary condition. We felt even in the mobile device right now it will be quite sufficient in the first place. But of course, if at the time when VR and other hardware becomes clearly necessary, I think the industry is actually ready to embrace it, and we actually have the technology to it. So, in a way it’s going to be like when people say Mobile Internet, what exactly is going to happen right there. There will be hardware developers who are developing mobile phones, but then the actual driver will be the apps that actually make use of those mobile phones, and I think that’s what happened with the hardware as well in this case.
In terms of regulatory, I would say it’s — in terms of any service, you just have to be compliant in the different territories that you operate, right? So, for the global market, there will be a set of regulations. For the China market, there will be another set of regulation, but we felt it’s not fundamentally adverse to the development [Indiscernible] in itself will be tech-driven. As James talked about, there is a lot of technologies that’s related to the development of games, as well as for the uni — for the metaverse. And as a result, the Chinese government will be in support of the development of such technologies. As long as the user experience is actually providing under the regulatory framework.
Operator
Thank you. Our next question comes from John Choi from Daiwa Capital Markets. Please ask your question.
John Choi
Thanks for taking my question, just quickly 2 questions here. On cloud computing, I understand that we had a pretty healthy growth, but right now as the overall macro is slowing down. We’ve been seeing some little bit of delay of [Indiscernible] Capex or IT budget being deployed. Are we likely seeing any of that, or as we look into 2022, is the growth trend still intact? And secondly, just a quick follow-up on your international game’s strategy. As we look into your — clearly you’ve been doing a great job, but still mostly from the mobile standpoint of view. But if you extend your platform, particularly in console or more on the PC side, on the more than the casual, what is our strategy there? And should we be expecting more strategic investments or M&A and decide to acquire more IP? Thank you.
James Mitchell
So, on the cloud
John Choi
question, our view that is the dominant trend is companies in China increasingly adopting infrastructure in the cloud platform, In the cloud and software in the cloud, and we think that trend continues
James Mitchell
with or without a faster or slower macroeconomic environment. Specifically, on the point of Capex bouncing around, I think that’s true and I think that reflects the fact that in 2020, that was high degree of uncertainty in the technology industry in China or about the ability to continue purchasing servers and GPUs and [Indiscernible] and so forth. And that forced some — the stockpiling trend is now being unwound, and global supply chain seems to be moving to a more normal basis, so these from sort of regulatory perspective vis -a – vis the U.S. So, I’d say at this point in time, we think that our business services will be less affected by regulation, and macro fluctuation, and then advertising. And then your question around console and PC, I also sure I caught the new ones.
I mean, obviously with being creating PC games for many years. Most recently, as the X86 architecture of converge between PC and console with started pretty soon games on console as well, including Pokémon Unite our most recently. And if you look at a number of what we referred to as sort of genre-leading specialty studios outside China, then the majority of them are actually in a constant Chiesi Centric. And that developed a reputation and a reality for operating 50 good games within a [Indiscernible] around [Indiscernible] and we’re now supporting them to do that. It’s a bigger scale than before.
In terms of IP, then generally speaking, IP matters more for mobile and perhaps a little bit less for PC outside China, the non-China PC gaming audience is a relatively engaged, sophisticated audience, that looks at reviews on Steam and Epic Games Store, and connects feedback from other players, and so what you can often see situations where our development team, who works on one particular IP very successfully actually separate from that IP and create something else, but that is a brand new IP, but ends up being bigger and better. And stereotypical, our classic example, the Epic Games where for a decade they were associated exclusively with the [Indiscernible]. But subsequently they sell gears before and that they focused on creating the Fortnite IP, which is even bigger and better than before.
Operator
Thank you. Our next question comes from Alicia Yap from Citigroup. Please ask your question.
Alicia Yap
Hi. Good evening, management. Thanks for taking my questions. I Have two questions. The first one is regarding your new versions of the CRM, SARS, TDN. It seems like you will be launching a new version by the end of this year to provide a deeper integration with — between the Tencent Meeting and also the WeCom. So how should we think about these upcoming online advertising opportunities with Weixin chat that could further expand and penetrate into other traditional industry vertical.
Then, second question, I guess, is there’s a lot of metaverse question tonight. I guess just to follow up a little bit on this [Indiscernible] related to your international game’s development and expansion. Just wondering if management could share the opportunity that you see in the global context of this metaverse opportunity. What do we need to be prepared in terms of capturing these evolving trends on, especially in whether we need to prepare a separate global infrastructure or some social network infrastructure, to capture this opportunity, in the global context? Thank you.
Martin Lau
I think what I’m seeing here, it is a good observation that we actually starting to integrate more among our different enterprise-facing SARS. And there will be more integration between WeCom and Tencent meeting and Tencent dogs and TDN and potentially other SaaS as well. And WeCom also provided a link into the WeChat — Weixin ecosystem. So, I would say there is fundamental benefits for these different SaaS. Apps to be talking to each other, and that actually sort of provide s a more unified experience for anyone, any enterprise customer who wants to use 1 or 2, or many of our SaaS applications.
And then in terms of being able to connect these SaaS to the consumers within ways in a controlled and secured way is actually very helpful both for the enterprise as well as for the consumers so that they can actually get served by the different businesses in a well-protected manner, and when that happens, in our prepared comment, we also talk about when enterprise can use this to foster selling or serving relationship with their customers than it can pro additional GMV to our Mini Programs. For example, it also can provide a reason for them to advertise more within Weixin. So yeah, metaverse. I’ve answered enough. James, maybe you can take a crack at that.
James Mitchell
I mean, I actually haven’t had Martins timeline of making such a world more real than making physical world richer before, but it’s very good. So, I repeated it. I think that’s the destination. Now, in terms of the pathways to the destination, it’s not necessarily in our interest to talk great length about specific plans, whether inside or outside China, but maybe just elaborate on what Martin was saying a little bit and what different pathways they are, what capabilities they need to aggregate, then I think that the most — that the pathway that most closely resembles metaverse today is games, virtual-world, open-world games.
And for games, they already have many of the components in place. I think the challenge is aggregating more and more virtual experiences, virtual game experiences together., Fortnite together with rocket lead in the epic example or multiple different so good game experiences within the Roblox sample. And also providing more and more powerful tools so that other amateur, but also professional content creators can create experiences including non-game experiences within these virtual worlds. Second part is that’s well understood. It’s taking user operated communities that already have a high degree of functionality, technology, thoughts, and then moving them from text and image basis to more of an immersive video basis. Since that’s area where companies like Discord, have opportunity.
And then the third is I in taking a pre -existing social network, but with the social network, one needs to both provide the 3D graphics capabilities that [Indiscernible] server base community, and also provide the UGC and [Indiscernible] tools that the game companies need to do. So, while the social networks, such as metaverse and snap have the most capital resources, that they also have a good amount of work to do. So anyway, I think that doesn’t answer your question directly, but I think that sheds some light on how we think about the pathways, and the future, and why we are doing some of the things that we’re doing.
Jane Yip
Thank you. And in the interest of time, we will take the last question.
Operator
Thank you. Our final question comes from Eddie Leung from Bank of America. Please go ahead.
Eddie Leung
How are you going, guys? Probably a bit more [Indiscernible] So 2 questions, the first one is regarding [Indiscernible] Is it curious if the growth we’re seeing right now is primarily driven by new clients or increasing spending of existing clients. Because we know that may have some indications on the margins. And then secondly, just a follow-up question on the headcounts. I understand you James has top that did that. But if we look at the increase in headcounts this year, they’re looking at you’re even including the additions are from some of the accuracy acquisitions or companies a bit auto and Sogou still look at 20,00, 30,000 of So like if we look into next year, what areas [Indiscernible] still require more headcounts? Thanks.
Martin Lau
In terms of Cloud, I would say both indicators are actually quite important, right? And in terms of existing clients, I would say its just volume growth on low margin products, and then it’s less valuable, but then if we can actually cross-sell our SaaS and pass products to existing customers, then that will be much better for our overall margin. And in terms of number of clients, it’s mainly happening at the long tail, right? The medium and small — specially the small companies will be the key driver for the number of clients and typically they don’t really drive sales, and revenue that much.
Even if you have a high percentage growth, the impact is actually lowering the ARPU of the customers, but not really driving the overall business volume. But the important thing is that these smaller companies would grow over time, and when they grow overtime, they grow without clouds, then it will be very profitable for us over time, over their lifetime. So that’s why our Cloud business actually focus on both ends. Basically, growing the number of customers that we have on the long tail and at the same time supporting our existing customers so that they can grow their business volume. Especially cross-selling them from [Indiscernible] to SaaS. On the second question.
James Mitchell
I think in terms of the headcount growth as you have mentioned clearly earlier, some of them are related to the acquired new subsidiaries, and this accounts for roughly 9000 people. And until we do have recruit, new graduate from time-to-time and they will be an under, 5 – 6,000 on an annual basis. In respect of the areas in which we’ll spend more. We have spent more basically [Indiscernible] including Cloud, including maps, including a lot of different business within the [Indiscernible].
Pony Ma
G, we also have some organic growth on end-gaming division, as James has mentioned earlier, hype for talents, especially in the un -engaged area. And so, we will invest further more on the online game’s parts. And the other thing is we invest in the content part because beforehand, a lot of those [Indiscernible] subcontracted out? But now we’re trying to build up our own team of people in this area. So as to content route sort of control the content, as well as
James Mitchell
doing a bit of content creation and things like in order to control the overall quality of the content. Going forward, I think we’re not talking about grow about 30 % and 40 % headcount growth on an annual basis, but we will be more moderate in 2022 [Indiscernible]
Jane Yip
Okay. Thank you. We are closing the core down, if you wish to checkout our press release, and other financial information. Please visit the IR section of our Company. Let’s say, do. The replay of this webcast will also be available soon. Thank you and see you next quarter.
Operator
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect.
Source: Seeking Alpha