Text/Liu Gongchang
Recently, Tencent Holdings released its unaudited financial report for the full year and fourth quarter of 2023. According to the financial report, Tencent's total revenue in 2023 will be 609.015 billion yuan, a year-on-year increase of 10%, exceeding the 600 billion mark for the first time, and the adjusted net profit will be 157.688 billion yuan, a year-on-year increase of 36%.
After Tencent released its 2023 financial report, the first thing it did was to increase its share buyback efforts, proposing to pay a dividend of HK$3.40 per share (about HK$32 billion) for the year ended December 31, 2023, a year-on-year increase of 42%, and planned to at least double the scale of share buybacks. In the first quarter of this year, Tencent has become the king of buybacks. According to data from the Hong Kong Stock Exchange, Tencent's repurchase amount reached HK$14.8 billion in the first quarter, with an average daily repurchase of about HK$824 million.
In the media communication conference after the release of the annual report, Martin Lau said that increasing buybacks is the most beneficial plan for shareholders, especially when the stock price is undervalued, and Tencent has the ability to continue to give back to shareholders. ①
On April 5, 2024, Tencent repurchased shares again, spending about HK$1.003 billion. Analysis predicts that Tencent's annual repurchase in 2024 may reach HK $132 billion. Some media reporters noticed that Tencent has increased its buyback efforts since 2022.
The repurchase strength exceeds the speed of the selling of large shareholders
It can be seen from Tencent's annual reports in recent years that in 2021, Tencent spent only 2.599 billion Hong Kong dollars on repurchasing shares, which suddenly soared to 33.794 billion Hong Kong dollars in 2022, and 49.433 billion Hong Kong dollars in 2023, and in 2024, according to publicly released news, its repurchase will exceed 100 billion.
Hua Chuang Securities Research Report believes that Tencent's 100 billion repurchase plan will offset the pressure on shareholders to reduce their holdings and have a positive impact on the stock price. Affected by this, Tencent's stock price has recently achieved continuous gains. From March 21 to April 5, the stock price rose by 5%, while the Hang Seng Tech Index fell by more than 4% over the same period. The entire Hong Kong stock market is wailing, and only Tencent may be the only big factory that is rising against the trend.
腾讯的大股东是南非的MIH Internet Holdings B.V，MIH由Naspers Limited透过其非全资附属公司Prosus N.V.控制，而MIH Internet Holdings B.V.则为Prosus N.V.的全附属公司。
In June 2022, Prosus announced the launch of a buyback program, which in turn was mainly obtained through the sale of Tencent shares by Naspers. The sell-off by the largest shareholders has led to a decline in Tencent's share price from 2022 to 2023. On January 27, 2023, Tencent Holdings' share price hit a nearly two-year high of HK$414.2 per share, and by January 22, 2024, almost a year, Tencent Holdings' share price bottomed out to a low of HK$260.2 per share since 2023, and Tencent's share price fell as much as 37.18% during the year.
Since January 2024, Tencent's share price has begun to recover, and as of the close of trading on April 9, the company's share price closed at HK$305 per share, roughly calculated, it has still fallen by 26.36% in more than a year.
In the first quarter, Prosus sold Tencent Holdings by about HK$200 million per day, while Tencent's actual average daily repurchase amount reached 4 times. This means that Tencent is effectively blocking the sell-off of Prosus at a buyback rate of nearly 4 times per day. Prosus reduced its stake in Tencent by 1.97 percentage points in 2023. Prosus reduced its stake in Tencent by 1.89% and nearly 4 percentage points in 2022 and 2023, respectively.
On December 31, 2021, Ma Huateng held 8.38%, Martin Lau held 0.58%, and Prosus held 28.82% through MIH TC. As of December 31, 2023, Tencent's major shareholder, MIH Internet Holdings B.V., held 24.96% of the shares. Tencent CEO Pony Ma holds 8.49% of the shares.
Overall, Pony Ma's shareholding has continued to increase slightly over the past two years, while Prosus' shareholding has decreased by nearly 4 percentage points.
In addition, Prosus' stake sales may gradually weaken, with its holdings falling by about 2% to 3% in 2023 and expected to slow further in 2024.
The largest shareholder has weakened its share sales and the second shareholder has increased share repurchases, indicating that as long as there are no major problems with Tencent's operation in 2024, its stock price will not fall, and it may even show a clear upward trend.
And Tencent dares to repurchase at a ratio of 4 times the amount of the largest shareholder's sell-off every day, which proves that Tencent has enough confidence, why does Tencent appear so confident, let's take a closer look at its financial report.
Channels have become a new revenue point
In 2023, Tencent's overall gross profit margin will increase from 43% to 48%, and from the perspective of various business segments, the performance growth rate of the value-added service segment will show a downward trend, and the growth momentum of online advertising and financial technology will be rapid.
The value-added services here mainly refer to the game business, and its domestic game business will decline in 2023, but the growth rate of advertising business and payment business will increase significantly. This was a good offset by the decline in profits caused by the decline in the game business.
It is precisely for this reason that in 2023, Tencent Holdings' gross profit, operating profit (Non-IFRS) and net profit (Non-IFRS) will achieve significant growth for four consecutive quarters, with the growth rates in the fourth quarter being 25%, 35% and 44% respectively, far exceeding the revenue growth rate.
Let's start with the game section. According to the financial report, Tencent's online game business revenue in 2023 will be 179.9 billion yuan, a year-on-year increase of 5.4%. Among them, the growth of overseas game business can be called a bright spot. In 2023, Tencent's game revenue in the international market increased by 14% to RMB53.2 billion, and also increased by 8% excluding exchange rate fluctuations, exceeding the growth rate of the global game industry by about 2% to 3% in 2023. This also increases the proportion of international game revenue in Tencent's game revenue to 30%.
In the domestic game market, Tencent Games' domestic market revenue in 2023 increased by 2% year-on-year to 126.7 billion yuan, but revenue fell by 3% to 27 billion yuan in the fourth quarter. Overall, Tencent's "key hit games" this year increased from 6 in 2022 to 8 in 2023. Looking ahead to 2024, Tencent Games has stockpiled a number of new products in the local market, and Tencent said that the most talked-about new game in 2024, Dungeons & Warriors: Origins, is scheduled to be launched in the second quarter. It may be able to change the problem of the decline in the domestic game business since 2023.
Games are the foundation of Tencent's finances, and if the performance of the game business continues to be sluggish, Tencent's overall revenue will inevitably be affected.
The second is the WeChat video account "living up to expectations". According to the data, in 2023, Tencent's advertising revenue will exceed 100 billion yuan against the trend and reach 101.5 billion yuan, with a growth rate of 23%. In the fourth quarter of 2023, for example, the advertising business increased by 21% year-on-year to RMB29.8 billion, mainly due to the demand for Channels and the continuous upgrade of advertising platforms.
At the same time, in the fourth quarter of 2023, WeChat MAU (monthly active users) increased by 7 million quarter-on-quarter, and the number of user disks expanded to 1.343 billion (as of the end of 2023). Benefiting from the huge user base of the WeChat ecosystem, the number of daily active users of WeChat search exceeded 100 million in the fourth quarter of 2023, and the total user time of WeChat Channels doubled.
②
WeChat Channels has brought the following effects to the growth of Tencent's entire business:
First, the revenue of fintech and enterprise services increased by 15% year-on-year to RMB203.76 billion, which of course was partly due to the collection of technical service fees for Channels to carry goods.
Second, Channels has also driven the growth of online advertising business. In 2023, Tencent's online advertising growth business increased by 23% year-on-year to RMB101.5 billion.
Third, in terms of video account e-commerce, according to a number of media reports, in 2023, the scale of WeChat Channels live streaming will increase significantly year-on-year, with GMV (gross merchandise transaction) increasing by nearly three times that of the previous year, the supply volume increasing by more than 300% year-on-year, and the number of orders increasing by more than 244% year-on-year.
The WeChat video account led by WeChat as the parent can be called another gold mine developed by WeChat after games and financial technology.
In this media conference, the management further mentioned the role of Channels in the social network of acquaintances and WeChat, pointing out that there is still a lot of room for growth in the future. "At present, the advertising loading rate of Channels is still very low, much lower than that of the industry, there is a lot of room for commercialization, and there is also a lot of growth in live broadcast and e-commerce. ”③
Getting rid of game dependency
According to the financial report, Tencent's overall gross profit margin in 2023 will increase from 43% to 48%. Tencent attributed this to the change in revenue structure, which was tilted towards high-quality businesses including video number advertising, technical service fees for bringing goods, and service fees for mini game platforms, as well as financial technology such as asset management, consumer loans, and commercial payments, while investment in low-gross margin businesses such as music live streaming and game live streaming services was significantly reduced.
As a result, the gross profit margin of value-added services increased by 3 percentage points to 54%, the gross profit margin of online advertising increased by 9 percentage points to 51%, and the gross profit margin of fintech and enterprise services business increased by 7 percentage points to 40%.
Therefore, it is widely believed that the most correct thing Tencent will do in 2023 may be to no longer pursue blossoming everywhere, but to focus its main experience on high-quality and high-profit industries, and low-quality and low-profit businesses will be gradually abandoned.
The first is to determine the "card" of financial technology as the foundation. If the WeChat parent is the foundation of Tencent's creativity, then financial technology and enterprise services have become the "cards" behind the entire company's revenue - the business revenue will be 203.8 billion yuan in 2023, and it will account for more than 30% of Tencent's overall market for three consecutive years, and achieve double-digit growth.
Specifically, in the fourth quarter of 2023, Tencent's fintech and enterprise services revenue increased by 15% year-on-year to RMB54.4 billion, still maintaining double-digit year-on-year growth.
There are two main reasons why the fintech business has maintained such a high level of growth: first, the large increase in the video account delivery business, which has led to an increase in its financial technology service fees, and second, the cloud business, which has been started very early, has also begun to resume growth after several years of ups and downs, which in turn has led to the growth of its extended financial services and consumer loan services, such as the year-on-year growth of about 20% in corporate service revenue.
Tencent's fintech and enterprise services business can be achieved today thanks to Tencent's initiative to weaken its dependence on games after Tencent began to deploy the industrial Internet in 2015, focusing on fintech and enterprise services.
Secondly, Tencent uses AI to make efforts in the To B business. While major companies are entering AI in a high-profile manner, Tencent's involvement is relatively low-key, mainly focusing on its application links to specific products.
On May 18, 2023, at Tencent's 2023 general meeting of shareholders, Ma Huateng responded to questions about ChatGPT and AI (artificial intelligence): "The key is to do a solid job in the underlying algorithms, computing power and data, and more importantly, to implement scenarios." We're still thinking a little bit at the moment, and I feel like there's a lot of companies that are in a hurry right now, and it feels like we're not in that style to boost the stock price. ”④
In September 2023, Tencent launched the hybrid model and continues to expand its functions, including Wensheng Diagram and Wensheng Video. At present, more than 400 services and scenarios have been tested in Tencent's hybrid model. At present, Tencent's hybrid model mainly serves Tencent Meeting, WeCom, Tencent Docs, etc. on the B side, and has been tested internally in more than 400 businesses within Tencent.
According to a data released by Tencent in September 2023, the number of paying users increased by 500% year-on-year after Tencent Meeting connected to the hybrid model; as for the landing of the hybrid model on the C-side, Martin Lau expressed cautious optimism.
According to management, Tencent Meeting's market position is rising, and WeChat's market share is also increasing. This doubles the revenue of the three Tencent To B products, including Tencent Docs, in the fourth quarter of 2023, and the three products can also be linked. Tencent launched the Tusheng video capability in March 2024.
The management emphasized that the most important thing for Tencent's hybrid model is the development of the base. In the future, Tencent AI will be promoted together in the fields of to B and C, and will empower various products including Tencent Docs and WeChat Work internally, and will increase the experience of mini programs and apps externally. At the earnings conference, executives saw AI as an accelerator for Tencent's future development. ⑤
It is not difficult for investors to see that when the wind of AI large models is hot, Tencent has maintained its usual low-key style. It is characterized by focusing on application links, aiming at the commercialization behind it, which is solid and may go further.
Ma Huateng is still not satisfied
In the face of such a brilliant result in 2023, Ma Huateng does not seem to be satisfied.
"At BAT, it seems that we only see a chance to sprout a little bit at the moment. And the other new trees are thriving, which also brings us a lot of pressure. On January 29, 2024, Ma Huateng said bluntly at Tencent's annual meeting. ⑥
Here, his so-called "germination" mainly means that Tencent's video account has embarked on the right path and has begun to show its strength. And to say that "other new trees are thriving" means that Douyin Kuaishou is far ahead in the same field, making it extremely difficult for Tencent Video to catch up.
Germination depends on the video number.
"A year ago, I said that the video number is'the hope of the whole goose factory', after more than a year of development, it has indeed lived up to expectations, giving us a lot of surprises in the process of growth, so that we have a solid grasp again in the case of the failure of short videos in the past. Ma Huateng said, "The most important thing is that we are not doing the same thing behind others, but combining our own characteristics and making short videos of acquaintances and socializing." ”⑦
Douyin and Kuaishou seized the short video and live broadcast e-commerce outlets, and soared all the way. And Tencent puts its hope on the video account. It is supported by the WeChat matrix of more than 1.3 billion users. So although in the eyes of the outside world, it is too late for Tencent to officially enter the short video market in 2020, but the fact is that under the moat of WeChat, the video account has caught up with the user volume of Douyin and Kuaishou in less than 3 years.
In the latest earnings call, Tencent revealed that the user time on the content consumption side of WeChat video accounts increased by more than 80% year-on-year, the number of creators increased sharply, and the GMV of live broadcast and video account e-commerce will increase significantly in 2023, exceeding 100 billion yuan. However, compared with the hundreds of millions of transactions on Douyin Kuaishou, the video account still seems small.
Therefore, Tencent's management also bluntly said that the GMV of the current video account and the e-commerce of Mini Programs is still small, "only the initial cultivation stage of this opportunity". (8) Under the GMV index of Douyin and Kuaishou, which has exceeded one trillion yuan, although the video number has grown rapidly, it is only over 100 billion, which is indeed still a "bud" and has great potential.
Why can't WeChat Channels do Douyin? This is the result of the objective situation of China's Internet development in recent years. The focus of competition for China's Internet has always been the battle for traffic, but it has been promoted from the user penetration rate in the PC era to the time share competition in the mobile era, and the corresponding key indicators are the number of active users per day, and the duration of the number of daily active users, and the core behind it is to grab the effective attention of users.
In this era, Douyin, which focuses on the user's mind and relies on its brutal recommendation play, is undoubtedly the biggest winner, Taobao Tmall Live opened the way for Douyin, and the epidemic has added fuel to it for three years, and then smoothed the gap between the national content/pan-entertainment traffic platform and e-commerce monetization.
Bind short video/live broadcast with interests, greatly reduce the threshold for live broadcasting, everything can be broadcast, everyone can broadcast, and use extremely vulgar front-end content (long video becomes "pig food") to meet the content consumption needs of current netizens (80%, 7-800 million netizens have a knowledge level below high school), and at the same time, through live broadcast rewards and private domain advertising sharing, the relative revenue sharing between creators and the platform has become an instant hit, and it has grown savagely in just five or six years. The three-year epidemic has provided the best external environment for its savage growth, and Tencent, which did not notice it at first and later realized the problem, began to exert efforts on the video account, but it was too late.
By 2023, the sphere of influence of the new traffic territory has largely settled, and the king of Douyin is gradually revealed.
People have always wondered,Why Tencent, which has a huge WeChat basic platform blessing and Tencent's long video king status, can't do Douyin in the field of short video,In addition to Tencent's subjective lack of attention at the beginning,Too late,Strategic decision-making confusion after entering,It is also related to the overall quality of the current mobile video netizens,It is more suitable for eating short-frequency and fast "pig food",Can't eat high-precision slow nutrition products。 With its special technical form, Douyin caters to such a group of people who are disdained by Ali Jingdong in the field of e-commerce and iQiyi, Tencent Video, etc. in the field of text, which can be called the biggest winner in the vulgar era.
Due to the product duration and content form of short video, which occupies the user's fragmented and garbage time, those traditional products that are inconsistent with their ecological model can be said to be wiped out under the impact of short videos dominated by vulgar needs that pay attention to short frequency and fast, such as YY, Douyu, including Tmall and Taobao, which once led the era, due to the limited user base of vertical categories; Under the brutal impact of Douyin, they were all defeated.
Entering the era of video e-commerce live broadcast Internet, if you want to compete with Douyin, which is already in the king position, only it has a stronger monetization ability, and it seems that the only one who can stand in the foreground and fight with it is Tencent.
Tencent is catching up with Douyin
ByteDance's total global revenue in 2023 will be around 800 billion yuan, Tencent's will be around 600 billion, and Alibaba's total revenue after shaving its industrial Internet business and direct e-commerce business will also be around 600 billion. And the extra 200 billion bytes are the international part.
In terms of revenue growth: Ali's e-commerce main business is zero growth, Tencent is 10% growth, and Byte has 30% growth this year.
The scale effect of revenue + higher proportion of high-margin advertising + healthier traffic ecology make Byte significantly outperform Kuaishou in gross profit margin and sales expense rate. Byte's operating margin of 25-30% is comparable to Tencent's main operating margin of 20-30% in 2023.
Byte may have been, and will still be, the first brother of China's Internet in the foreseeable future, and Tencent and Ali have been left behind.
It is estimated that Douyin's main operating profit of nearly 200 billion yuan in 2023 has surpassed Tencent, and with reference to the PE valuation of Tencent's core business of about 20X and Meta's PE of 25X, Byte's current valuation should be between $500 billion and 550 billion in a neutral and conservative manner, and the fair value also exceeds Tencent's current market capitalization (9)
Different from Douyin's strong operation orientation, WeChat Channels is product-oriented.
In addition, the rules that have been continuously refined in the process of Douyin's wild run are raising the threshold of its e-commerce. A Douyin service provider told Tiger Sniff that some businesses have been unable to keep up with Douyin's gameplay. "The traffic mainly comes from the recommendation page, and the search volume is small, and the natural traffic of the recommendation page should be analyzed according to the completion rate, interaction rate, interest degree and heat value, and some projects will be cast to observe the GMV conversion; ”
The above situation stimulates more creators to test the waters of the video account to a certain extent, especially during the period of 2022~2023, the increase in the loading rate of Douyin e-commerce has led to a decline in user experience, and a large part of the user's appeal for short videos has been digested by the video account, and some creators have begun to migrate to the video account - behind this, the video account is based on the innate advantages of people, >goods, and fields, digging deep into the transaction needs of the social relationship chain, and building a new transaction scenario centered on "people". ⑩
However, Tencent's overall sales of live streaming in 2023 will only exceed 100 billion yuan (including video accounts, mini programs, etc.), which is still far from Douyin. But Tencent has no way out, and the weapon of catching up with Douyin is only the best video number, and of course it is the most worth looking forward to.
It is worth noting that the 2023 S&P Global Sustainability Assessment has improved Tencent Holdings' (00700.HK) ESG score, making it rank among the top five in the industry ahead of Google and Meta.
"Digital technology and artificial intelligence are Tencent's core competencies for sustainable development. Tencent Chairman and CEO Pony Ma said in the report that in the past year, Tencent has made many innovative explorations in various areas of ESG. ⑪
On April 8, Tencent released its 2023 ESG (Environmental, Social and Governance) report. In terms of hearing barrier-free, the "Miying Digital Intelligence Medical Imaging Platform" and multiple auxiliary diagnostic systems, the medical model based on the self-developed basic model "Tencent Hybrid Yuan", the green transformation of the supply chain, and the strengthening of third-party data processing and control, Tencent has begun a truly intelligent and ecological development in people's impression of only relying on games to make children's money.
On April 19, BOCI released Tencent's financial report for the first quarter of 2024 in advance. According to the report, Tencent's revenue is expected to grow modestly by 5% year-on-year to RMB157 billion, with gross margin and adjusted net profit margin of 49.7% and 27.3%, respectively, in line with market expectations.
Not only that, BOCI also expects Tencent's revenue growth to accelerate year-on-year from the second to fourth quarters, and strong growth is coupled with a strong return on capital plan, BOCI maintains Tencent's "buy" rating and its target price of HK$407.
Observers believe that Tencent is one of the few companies among the major domestic manufacturers with relatively healthy fundamentals and real sustainable development potential, and because of this, after the announcement of the 2023 financial report, it is generally optimistic about domestic and foreign rating agencies and investors.
[Quote]
(1) Tencent's latest shareholding structure is exposed, Ma Huateng holds 8.49% of the shares 2024-04-15 Sohu News)
(2) (Tencent received a red flag 2024-03-25 Producer|Tiger Sniff Commercial Consumer Group Author|Huang Qingchun)
(3) (Tencent's 2023: Channels "live up to expectations", games will return to growth or will not be until the second quarter of this year 2024-03-20 Blue Whale TMT)
(4) (Tencent makes a net profit of 155.7 billion a year, Ma Huateng is still dissatisfied 2024-03-21Leopard Change (ID: baobiannews), author: Zhao Ruoci)
(5) (Tencent's 2023: The video account "lives up to expectations", and the game will return to growth or will not be until the second quarter of this year Blue Whale Finance2024-03-20 )
(6) (Tencent makes a net profit of 155.7 billion a year, Ma Huateng is still not satisfied Tiger Sniff2024-03-21 From WeChat public account: Leopard Change (ID: baobiannews), Author: Zhao Ruoci)
(7) (Ma Huateng's speech at the annual meeting: the video number lives up to expectations and vigorously develops live broadcast e-commerce this year 2024-01-30 "E Company" under Guangdong Securities Times)
(8) (Video Account, The Last Hope of Tencent's E-commerce Dream Blue Media Exchange2023-12-28)
(9) (The fall of the gods of the Internet, who is better than Alibaba, Meituan, JD.com and Tencent?2023-12-29 Source: Titanium Media APP ).
(10) (Tencent received a red flag 2024-03-25 Producer|Tiger Sniff Commercial Consumer Group Author|Huang Qingchun)
(11) (Tencent's 2023 ESG Report Released: Developing Responsible AI and Using Digital Technology to Promote Sustainable Development Goals Source: China Daily2024-04-09 )