Affected by the growth of high-profit business, Tencent's performance in the first quarter exceeded expectations, and the following are the highlights of this business:
- The gross profit margin increased to 53% from 45% in the same period last year, and the gross profit of the three main businesses increased together.
- The total user time of Channels increased by more than 80% year-on-year, and the total user time of Mini Programs increased by more than 20% year-on-year.
- WeChat video accounts, mini programs, official accounts and Soyisou drove the growth of advertising business, and advertising revenue increased by 26% year-on-year in the first quarter;
- International gaming market revenue increased 3% year-over-year but decreased 3% sequentially. Local game revenue fell 2% year-on-year in the first quarter and increased 28% quarter-on-quarter; The total turnover of the game has increased;
After the Hong Kong stock market on May 14, Tencent announced its first-quarter financial report. According to the report, Tencent's operating income in the first quarter was 159.5 billion yuan, a year-on-year increase of 6%, higher than the market expectation of 158.81 billion yuan, a slight increase of 3% month-on-month.
Net profit was RMB41.9 billion, up 62% year-on-year and 55% quarter-on-quarter, significantly exceeding market estimates of RMB34.5 billion. Operating profit of RMB52.56 billion, up 38% year-on-year and 27% quarter-on-quarter, also exceeding market estimates of RMB45.28 billion, and adjusted net profit of RMB50.27 billion, up 54% year-on-year, to an estimated RMB43 billion.
From the perspective of profitability, the gross profit in the first quarter was 83.87 billion yuan, a year-on-year increase of 23%, the gross profit growth rate outperformed revenue for six consecutive quarters, and the gross profit margin increased from 45% in the same period last year to 53%. The gross profit of Tencent's three main businesses increased together, and the gross profit of FinTech, Enterprise Services, and Online Advertising increased by more than 40% year-on-year for two consecutive quarters.
Tencent said:
The increase in gross profit was due to the rapid growth of high-margin revenue sources, including advertising revenue from WeChat Channels and Soyisou, service fees from mini game platforms, wealth management services and technical service fees for Channels merchants. The improved cost efficiency of the long video and cloud businesses also contributed to the gross profit growth.
In terms of repurchases, Tencent repurchased a total of 14.8 billion Hong Kong dollars in the first quarter, a record high, with a total of 51.04 million shares. The repurchased shares have since been cancelled. Buybacks are carried out with the aim of increasing shareholder value in the long run. Tencent said that it will increase buybacks in the future, implement a buyback plan of more than 100 billion yuan in 2024, and increase dividends.
In addition, R&D expenditure in the first quarter was 15.678 billion yuan, and Tencent said it would continue to invest in AI technology.
WeChat drove advertising business growth by 26% year-on-year in the first quarter
In terms of Tencent's online advertising business, revenue increased by 26% year-on-year to RMB26.5 billion, accounting for 17% of total revenue.
Gross profit from advertising in the first quarter increased by 66% year-on-year to RMB14.5 billion, and gross profit margin increased to 55% from 42% in the same period last year.
Tencent said in its financial report:
This was driven by the growth of WeChat Channels, Mini Programs, Official Accounts and Soyisou, as well as increased user engagement and the evolving AI-driven ad tech platform.
Advertising spending increased in all major sectors except the automotive industry, with significant growth in gaming, internet services and consumer goods.
In addition, the total user time spent on Channels increased by more than 80% year-on-year, and Tencent said that it has strengthened the live streaming ecosystem of Channels by expanding product categories and encouraging more content creators to participate in live streaming.
The total user time spent by Mini Programs increased by more than 20% year-on-year. Among them, the average daily usage of non-game Mini Programs achieved a double-digit percentage increase year-on-year, and the turnover of Mini Games increased by 30% year-on-year.
Some analysts have pointed out that after more than 2 years of key investment, the overall platform ecology and content matrix of Channels have been continuously matured and improved, and compared with competing products, Tencent's overall commercialization rate is relatively low, which means that Tencent will have a large monetization space to increase its revenue on Channels in 2024.
Paid memberships increased by 12% year-on-year
In terms of users, as of the first quarter, the combined monthly active accounts of WeChat and WeChat were 1.359 billion, an increase of 3% year-on-year and 1% quarter-on-quarter.
The number of monthly active accounts on QQ was 554 million, down 7% year-on-year and 0.2% month-on-month.
The number of paid members increased 12% year-on-year to 260 million, up 7% quarter-on-quarter.
The original soundtracks of "Flowers" and "Walking with the Phoenix" drove the number of paid members of long videos increased by 8% year-on-year to 116 million, and the number of paid music members increased by 20% year-on-year to 114 million.
Social networking revenue decreased 2% to RMB30.5 billion in the first quarter, up 8% quarter-on-quarter. It reflects the increase in revenue from paid music and long video memberships, live streaming services on Channels and service fees for mini game platforms, while revenue from live streaming music and live game services decreased.
Total game turnover grows, and local game revenue increases by 28% quarter-on-quarter
Value-added services decreased by 0.9% year-on-year to RMB78.6 billion, and the segment is divided into two segments: gaming and social networking.
Among them, Tencent's game business in the first quarter of this year achieved year-on-year growth in both the domestic market and the international market, and Tencent said that the total game turnover has increased, laying the foundation for the recovery of game revenue growth in the next few quarters.
In the international gaming market, total turnover increased by 34% year-on-year, and revenue increased by 3% year-on-year to RMB13.6 billion, but decreased by 3% quarter-on-quarter.
Tencent said this was due to the resurgence in popularity of Supercell's games, especially the number of Brawl Stars accounts more than doubled year-on-year, the turnover exceeded four times that of the same period last year, and the increase in users and turnover of PUBG MOBILE.
In the domestic gaming market, total turnover returned to a year-on-year increase of 3%, with revenue of RMB34.5 billion, down 2% year-on-year and up 28% month-on-month, due to the peak season during the Spring Festival.
Specifically, Tencent said:
In terms of individual games, Honor of Kings and Peace Elite, two flagship games in the local market, saw a year-on-year decline in quarterly revenue due to the high base during the Spring Festival last year, and Peace Elite's revenue declined year-on-year due to weaker commercial content in the second half of 2023.
However, the turnover of a number of games in the local market, such as "Battle of the Golden Shovel", "CrossFire Mobile" and "Dark Zone Breakout", hit a record high this season.
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