China’s Tencent misses expectations despite fastest profit rise since late 2021

Tencent on Wednesday reported a weaker-than-expected surge in revenue for the second quarter, as cost-cutting measures started to repay and gross sales rose throughout the corporate’s numerous companies.

Here’s how Tencent did within the second quarter, versus Refinitiv consensus estimates:

• Revenue: 149.21 billion Chinese yuan ($20.46 billion) vs. 151.73 billion yuan anticipated, representing an increase of 11% year-on-year.
• Profit attributable to fairness holders of the corporate: 26.17 billion Chinese yuan vs 33.42 billion yuan. That is a 41% year-on-year rise.

Tencent is now beginning to see the advantages of the cost-cutting drive it launched into final yr, when it exited non-core companies and tightened advertising and marketing spending. The firm, which owns China’s greatest messaging app WeChat, is now observing a pick-up in its companies, from gaming to cloud computing.

“During the second quarter of 2023, we sustained a solid revenue growth rate, along with a gravitation toward high quality revenue streams with better margins,” Tencent mentioned in an announcement.

“This transition, combined with careful cost discipline developed in the previous year, resulted in profit growth exceeding revenue growth.”

Tencent has now reported three straight quarters of income development, because the Chinese know-how large recovers from the headwinds of a troublesome 2022.

Firstly, its core gaming business slowed dramatically relative to comparisons with 2021, when individuals relied extra on indoors leisure due to the unfold of the pandemic. Tencent is among the world’s greatest on-line gaming corporations.

Secondly, Chinese authorities froze the approval of latest video games for a number of months and solely restarted the method in April 2022. It took a couple of months for the regulators after this to approve video games printed by Tencent.

But the weaker-than-expected income development continues to replicate the turbulence of the Chinese economic system, which has did not get well as briskly as many had anticipated after the pandemic.

Tencent mentioned its home sport income remained flat year-on-year at 31.8 billion yuan, after the corporate launched “less-commercial content” — akin to in-game purchases — in its greatest titles. The regular end result was higher than the 1% income decline seen within the second quarter of 2022. Tencent mentioned this was a “temporary phenomenon” and that home sport income ought to resume year-on-year development within the third quarter of the yr.

Revenues from the International Games unit elevated by 19% to 12.7 billion yuan, bolstered by titles like Valorant. Tencent has been specializing in boosting its worldwide gaming income, given weak home gross sales and a troublesome regulatory setting in China.

Tencent mentioned there are “signs that the post-pandemic dip in activity is moving behind us in mobile games.”

Tencent’s average efficiency within the gaming business was offset by a giant rise in income in its promoting unit, with a 34% year-on-year leap to 25 billion yuan. The determine beat Refinitiv consensus estimates of twenty-two.85 billion yuan for advert income.

The firm mentioned this was the results of “robust demand” for promoting on its short-video platform, as advert spend on its platforms grew at “double-digit year-on-year rate from every major advertiser category, except transportation.”

Tencent’s gross sales have been additionally helped by income from its monetary know-how and cloud computing division, which added 15% year-on-year to 48.6 billion yuan. Tencent runs considered one of China’s greatest cell funds platforms known as WeChat Pay, for which it prices transactions charges.

The fintech and cloud division was helped by e-commerce transactions on Tencent’s quick video platform in addition to by “modest growth” in cloud companies, the corporate mentioned.