On Wednesday, Tencent reported a sharp increase in profits for the second quarter, however, it failed to meet projections. The positive outcomes from the cost-reduction initiatives set in motion last year -- such as discontinuing non-core operations and curbing advertising expenses -- have started to manifest. Yet, the revenue growth which seemed disappointing was a consequence of the disheartening state of the Chinese economy, which has not been able to regain all the losses inflicted by the Covid-19 pandemic.
Tencent on Wednesday revealed a lower-than-anticipated jump in profits for the second quarter, as cost-control efforts began to produce results and sales throughout the organization's different businesses grew. Here's how Tencent fared during the second quarter, compared to Refinitiv consensus quotes: Revenue: 149.21 billion Chinese yuan ($20.46 billion) vs. 151.73 billion yuan predicted, marking a rise of 11% year-on-year. Profit attributable to equity holders of the company: 26.17 billion Chinese yuan vs 33.42 billion yuan. This constitutes a 41% year-on-year surge. Tencent is now beginning to reap the benefits of the cost-managing initiative it embarked on in 2021, when it exited non-core activities and limited marketing spending. The company, which owns China's largest messaging app WeChat, is now observing an increase in its businesses, from gaming to cloud computing."Throughout the second quarter of 2023, we sustained a reliable revenue growth rate, as well as a shift toward high-quality revenue streams with higher margins," Tencent stated in a report. "This transition, combined with keen cost control developed in the previous year, led to profit growth exceeding revenue growth." Tencent has now recorded three consecutive quarters of revenue growth, as the Chinese tech behemoth recovers from the headwinds of a tough 2022. To begin with, its main gaming business greatly slowed relative to 2021, when people depended much more on indoors entertainment due to the spread of the virus. Tencent is one of the largest online gaming companies in the world. Secondly, Chinese regulators froze the approval of new games for several months and only restarted the process in April 2022. It took a few months for the regulators after this to authorize games released by Tencent. But the lower-than-expected revenue growth continues to reflect the turbulence of the Chinese economy, which has failed to bounce back as rapidly as many had anticipated after the pandemic.
Tencent reported that its domestic game revenue stayed even at 31.8 billion yuan, after releasing "less-commercial content" such as in-game purchases in its top titles. This marked an improvement from the 1% downward trend in the second quarter of 2022. Though the company recognized this as a "short-term phenomenon", it anticipated that domestic game revenue would likely resume year-on-year growth in the third quarter. The International Games unit, driven by titles such as Valorant, saw a 19% increase to 12.7 billion yuan. Tencent has been concentrating on lifting international gaming revenue due to weak domestic sales and a strict regulatory framework in China.The Chinese tech giant also indicated signs of "the post-pandemic slump in activity moving behind us in mobile games".
Tencent reported 25 billion yuan in revenue from its advertising unit, surpassing Refinitiv consensus estimates of 22.85 billion yuan. This was due to the strong demand for advertising on its short-video platform, as ad spend from various categories rose at a double-digit year-on-year rate, with transportation being the only exception. Additionally, its financial technology and cloud computing division brought in 48.6 billion yuan with a 15% increase year-on-year. This was driven by e-commerce transactions on its short video platform, as well as modest growth in its cloud services. Despite this, the gaming business saw moderate performance.
Comments