Major shareholders cashed out $5 billion, and revenue was surpassed by bytes, Tencent, are you okay?
On November 29, Prosus, the Dutch subsidiary of South Africa's Naspers Group, the majority shareholder of Tencent Holdings, announced its latest earnings report. According to the data, the company's consolidated revenue was $2.56 billion, up 13% year-over-year, and core revenue was up 118% year-over-year to $2 billion. However, forecasts show that Prosus' core overall earnings per share could decline by 21% to 28% in FY2024.
Notably, Prosus has sold about 1% of its stake in Tencent in the first half of the fiscal year, reducing its stake from 26.2% to about 25%, and received $4 billion in proceeds. Prosus announced that it will use the cash out to buy back its own shares. Between October and November 24, Prosus sold a further 26.22 million shares of Tencent for a gain of $1 billion.
This series of shareholder reductions, especially while continuing to achieve high returns, has attracted the attention of the market. For Tencent, a large-scale reduction of holdings may lead to concerns about the company's prospects, which in turn will affect the stock price performance.
Whether there will be shareholder reductions in the future is an issue that Tencent needs to consider urgently.
Revenue was surpassed by ByteDance
With the release of the latest round of financial reports, the first throne of the Internet has alternated, surpassing Tencent and Alibaba, and ByteDance has successfully reached the top. According to the financial report data, in 2022, ByteDance achieved an impressive revenue of $85.2 billion, a year-on-year increase of 38%, and as of the first quarter of 2023, ByteDance's revenue reached $24.5 billion, a year-on-year increase of 34%, and the operating profit reached $6 billion. In the second quarter, ByteDance's revenue soared again, up 40% to $29 billion, and its total revenue in the first half of the year was about $54 billion (about 390 billion yuan), far surpassing Tencent.
Source: Straight Flush Data Ape Collation
ByteDance, which has three phenomenal star apps (Douyin, TikTok, and Toutiao), seems to have entered a new stage of development and has become the focus of the industry. In 2022, Meta's annual revenue will be $116.6 billion, and ByteDance will achieve $85 billion in revenue, although there is still a certain gap between the two, but Meta's data is gradually declining, and the sum of Google's revenue in the United States Internet Square is less than 50% for the first time. If ByteDance maintains this growth trend in the future, it is expected to officially surpass Meta in 2024 and become the only company that can threaten Meta's position.
It should be pointed out that in ByteDance's international business, its main competition mainly relies on TikTok, rather than the collection of its three popular apps.
Returning to the domestic market, some media calculations show that ByteDance's operating profit in the first quarter of 2023 has exceeded the average operating profit of Alibaba and Tencent in the past three quarters, and is even much higher than that of e-commerce platforms such as JD.com and Pinduoduo, reaching the first place among domestic Internet companies.
Source: Bread Finance
On the whole, the "B" in China's BAT (Baidu, Alibaba, Tencent) is expected to be replaced by ByteDance, and ByteDance is rapidly rising as a dark horse in the Internet field at home and abroad.
On the other hand, Tencent's performance in the first half of 2023 was outstanding, with operating income of 299.2 billion yuan, a year-on-year increase of 11.02%, and net profit attributable to the parent company of 52 billion yuan, a year-on-year increase of 23.74%. On a non-IFRS basis, net profit attributable to the parent company was RMB70.1 billion, up 31% year-on-year. Frankly, this is already quite an excellent report card, and it is particularly noteworthy that in terms of profit, Tencent's core operating profit increased by 49% year-on-year. However, in terms of growth trends, revenue growth has remained around 10% for four consecutive quarters. What's even more surprising is that the unexpected increase in profit is mainly due to the optimization of the cost side. In the third quarter, Tencent's cost of revenue was 78.102 billion yuan, a decrease of 266 million yuan from 78.368 billion yuan in the second quarter, and sales and marketing expenses also decreased by 5% from the previous quarter.
But when Tencent is mentioned recently, people will always pay attention to the topic of ByteDance surpassing Tencent. Such a situation can't help but raise people's questions: Tencent, what are you doing?
What is the future of Tencent?
While Tencent remains financially strong, ByteDance's rise seems to have somewhat overshadowed Tencent's achievements. Shareholders reduce their holdings and their income is exceeded, what should you do next?
Specifically, Tencent's disclosed business segments are value-added services, online advertising, financial technology and enterprise services, and others. Value-added services have always been Tencent's cash cow, accounting for nearly 50% of revenue in the past two quarters. Its value-added business includes two core businesses: online games (mobile games, terminal games) and social networks (digital content, membership subscriptions, etc.).
Although on the whole, Tencent's performance is still bright, but its fundamentals are beginning to show weakness. Although the gaming industry showed signs of recovery in the first half of this year, the overall market grew by 37.49% and 46.08% year-on-year in July and August, respectively, while the mobile game market grew even faster, with 51.1% and 63.7%, respectively. However, the anxiety of competition in the entire domestic game market is also escalating.
First of all, the domestic game market is showing a trend of red sea, with a wide variety of games. According to public data, a total of 699 domestic online games were approved in the first seven months of 2023, and another 58 imported online games received game version numbers, which has exceeded the number in the whole of 2022.
Secondly, the competition pattern of the domestic game market is obviously scattered, and the competition has entered a white-hot stage. Tencent is facing a lot of pressure in the survival environment, not only the domestic game strength of NetEase, but also in the face of menacing competitors such as miHoYo, in order to maintain market share, Tencent needs to find new growth points in the fierce competition.
According to the financial report data, the combined monthly active accounts of WeChat and WeChat reached 1.336 billion in the quarter, a year-on-year increase of 2%. The stickiness and activity of the WeChat ecosystem continue to increase. Tencent highlighted the good growth of its advertising business, mainly due to strong demand from Channels, Mobile Ad Alliance and WeChat Search Ads. For the first time, Tencent put forward the concept of pan-internal circulation advertising revenue in its financial report, that is, advertisements with WeChat Mini Programs, Video Accounts, Official Accounts and WeChat Work as landing pages, which can account for more than half of WeChat ads.
As one of the products with the most growth potential in the WeChat ecosystem, Channels has shown a strong momentum of development. In the third quarter, the total number of views on Channels increased by more than 50% year-on-year, and the number of original content views grew strongly. Although Channels is still in the early stages of dividend release, it has already brought considerable performance increments to Tencent. In addition, the service fee for live streaming technology has also become an important source of Tencent's enterprise service revenue, significantly improving the profit margin of the business.
Tencent's logic for building a video account is clear, and through the establishment of traffic to feed back various businesses in the WeChat ecosystem, a positive closed loop is formed. WeChat, as the core platform that gathers Tencent's huge traffic pool, has benefited a lot from the fact that Channels has led the trend in traffic. Within the WeChat ecosystem, with the help of various innovative tools, Channels has been able to gain traffic, improve customer acquisition, enhance interaction with potential consumers, increase sales conversion rates, and ultimately drive ad revenue growth.
In the Internet world, the fluctuation of revenue and profit is not terrible, but the terrible thing is that the moat is narrow and the core competitiveness is weakening.
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