Earnings

Tencent posts fastest profit growth in 3 years as online ads, business services offset slower gaming

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Tencent has faced a number of headwinds in 2022 including a Covid-induced slowdown in the Chinese economy and a tougher market for gaming.
Bobby Yip | Reuters

Tencent beat analyst estimates for revenue and profit in the first quarter, thanks to slightly better sales in the Chinese tech giants core gaming business and improved profitability at its advertising and business services division.

Here’s how Tencent did in the March quarter versus LSEG consensus estimates:

  • Revenue: 159.5 billion Chinese yuan ($22 billion) versus 158.4 billion yuan expected.
  • Profit attributable to equity holders of the company: 41.9 billion yuan versus 36.64 billion yuan anticipated.

Tencent’s adjusted net profit was up 62% year-on-year, marking the fastest growth since the March quarter of 2021, according to LSEG data. Revenue jumped 6% year-on-year.

The Chinese internet giant, which runs the world’s largest messaging app WeChat, has been on a path to recovery after suffering its first annual revenue decline in 2022.

It embarked on a cost-cutting drive that year and exited non-core businesses, in a bid to focus on its core gaming division and other areas like advertising and cloud computing.

Investors have rewarded the company’s efforts so far, with shares up 30% this year.

Tencent said revenue for its China gaming business in the first quarter fell 2% year-on-year, an improvement on the 3% fall seen in the fourth quarter. The company said revenue from one of is high-profiles games “Honour of Kings” declined year-on-year against a high base versus Chinese New Year, while there was “weak monetisable content” from “Peacekeeper Elite.”

International games revenue rose 3% year-on-year in the first quarter, better than the 1% increase seen in the previous quarter. Tencent said the growth was thanks to a rise in players of PUBG Mobile and a resurgence in popularity of games from its studio Supercell.

Still, the growth in Tencent’s gaming division remains weak.

“During the first quarter of 2024, several of our leading games in China and internationally started to benefit from team reorganisations we put in place, resulting in an increase in games gross receipts and creating a foundation for our games revenue to resume growth in future quarters,” Tencent said in its earnings release.

Ads, cloud help Tencent profits

Tencent’s other businesses helped the company in the first quarter.

The online advertising division posted revenue of 26.5 billion yuan, up 26% year-on-year — an acceleration from the fourth quarter. The company attributed this to increased engagement across various features on WeChat and “ongoing enhancement” of Tencent’s “AI-powered advertising infrastructure.”

Gross profit for the ad business grew 66% year-on-year to 14.5 billion yuan. 

Tencent’s fintech and business services unit, which includes its mobile payment service WeChat Pay and its cloud computing division, posted a revenue rise of 7% year-on-year to 52.3 billion yuan. Gross profit for the business jumped 42% year-on-year.

“We continue to cultivate high quality revenue streams including advertising in Video Accounts and Weixin Search, Mini Games platform service fees, and eCommerce technology service fees, contributing to our gross and operating profit growth outpacing our revenue growth,” Tencent said in its earnings release.

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