On May 14, Tencent Holdings released its financial report for the first quarter of 2024, with revenue of 159.5 billion yuan, gross profit of 83.87 billion yuan, operating profit (Non-IFRS) of 58.619 billion yuan, and net profit (Non-IFRS) of 50.265 billion yuan, with gross profit, operating profit (Non-IFRS) and net profit (Non-IFRS) growing by 23%, 30% and 54% year-on-year respectively, all of which continued to outperform revenue growth.
Driven by the rapid growth of high-quality "sprout" businesses such as Channels, Mini Programs, and SaaS, as well as the focus on efficiency improvement of traditional businesses, Tencent maintained high-quality growth at the beginning of the year.
Pony Ma, Chairman and Chief Executive Officer of the Company, said: "In the first quarter of 2024, we have achieved initial results in the realignment of several leading games in the domestic market and the international market, and the total game turnover has increased, laying the foundation for the recovery of game revenue growth in the next few quarters. We continued to cultivate high-quality revenue streams, including WeChat Channels and Soyisou advertising, Mini Game Platform Service Fees and Channels Merchant Technical Service Fees, which drove our gross profit and operating profit growth to outpace revenue growth. Committed to returning surplus capital to shareholders, we have stepped up our buyback efforts, executed over HK$100 billion in share buybacks in 2024 as planned, and increased dividends, while continuing to invest in AI technology, enhancing our platform and producing high-value content.
Financial data of major sectors in the first quarter of 2024:
the revenue of financial technology and enterprise services was 52.3 billion yuan, a year-on-year increase of 7%;
online advertising revenue was 26.5 billion yuan, a year-on-year increase of 26%;
the game revenue in the international market was 13.6 billion yuan, a year-on-year increase of 3%;
The number of paid members of Tencent Video was 116 million, a year-on-year increase of 8%; The number of paid members of Tencent Music was 113.5 million, a year-on-year increase of 20%, and a net increase of 6.8 million quarter-on-quarter, the largest net increase in a single quarter.
Gross profit increased by 23% year-on-year, and the "sprout" business grew rapidly
Tencent's overall gross profit growth rate has remained above 20% for four consecutive quarters, and gross profit is generally regarded as an important indicator of sustainability and revenue quality.
In the first quarter, among Tencent's three core business segments, the gross profit of online advertising, financial technology and enterprise services, and value-added services all increased year-on-year. Among them, the gross profit of online advertising, financial technology and enterprise services business has grown by more than 40% for two consecutive quarters.
It is the healthy growth of the high-quality, high-margin "sprout" business that continues to contribute new revenue to Tencent's various business segments and open up new space for growth.
In the first quarter, Tencent's online advertising revenue increased by 26% year-on-year, gross profit increased by 66% year-on-year, and gross profit margin increased to 55% from 42% in the same period last year.
According to the financial report, the total user time spent on Channels increased by more than 80% year-on-year, and Tencent has strengthened the live streaming ecosystem of Channels by expanding product categories and encouraging more content creators to participate in live streaming.
Channels and Soyisou ads maintained rapid growth, significantly driving the growth of online advertising revenue and gross profit. Since the fourth quarter of 2022, Tencent's online advertising revenue has maintained double-digit high growth.
Channels continued to contribute new revenue growth to the fintech and enterprise service business. At the same time, driven by the acceleration of PaaS and SaaS commercialization, the gross profit of Tencent's fintech and enterprise services business increased by 42% year-on-year in the first quarter, and the gross profit margin increased to 46% from 34% in the same period last year.
In the first quarter, "components" such as mini programs, mini games, and search in the WeChat ecosystem also continued to bloom with vitality. 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. The service fee of the mini game platform has become a new source of revenue for the value-added service sector.
According to public information, Tencent continues to build large models and accelerate the implementation of applications, and Tencent's hybrid model has expanded to a trillion-level parameter scale. For the industry, Tencent has successively released industry solutions such as finance, medical care, and automobile models. Internally, Tencent's collaborative SaaS products such as WeCom, Tencent Meeting, and Tencent Docs have all been connected to Tencent's hybrid model to upgrade intelligence. The large-scale model technology provides the underlying support for technological innovation for the growth of more "sprouts" of Tencent's business.
According to the financial report, Tencent's R&D expenditure reached 15.678 billion yuan in the first quarter, and the R&D investment has exceeded 285.3 billion yuan since 2018.
The new way of playing enterprise services has achieved remarkable results, and overseas games have grown steadily
In the first quarter, Tencent's enterprise service business revenue achieved a year-on-year growth rate of more than 10 points. The increase in the commercialization of WeCom and other enterprise services businesses, as well as the improved cost-effectiveness of the cloud business, contributed to the gross profit growth.
According to the financial report, Tencent Cloud's audio and video solutions have attracted more local and international customers, especially in the media, entertainment and live streaming industries. For the sixth year in a row, the International Data Corporation (IDC) has ranked Tencent Cloud as the leader in the Chinese market for audio and video solutions.
Through a series of measures such as strengthening the ability of self-developed products, promoting the integration of products, and allowing partners to play the leading role, Tencent's strategic focus on enterprise services has achieved remarkable results since 2023, returning to a healthy growth track, and its gross profit margin has continued to increase.
Tencent's game segment, another traditional strong business, achieved revenue of 48.1 billion yuan in the first quarter, affected by revenue delays and other factors, the growth of games in the domestic market was under pressure in the short term, and the game revenue in the international market maintained steady growth, with a year-on-year increase of 3% in the first quarter to 13.6 billion yuan, and the overseas market has become an important growth engine for Tencent Games. In the first quarter, the total game turnover in the international market increased by 34% year-on-year.
According to the financial report, Tencent's two flagship games in the local market, "Honor of Kings" and "Peace Elite", began to benefit from the new commercialization rhythm and the improvement of game content design, and the turnover in March increased year-on-year; A number of local market games, such as "Golden Shovel Battle", "CrossFire Mobile" and "Dark Zone Breakout", hit a record high this season. Supercell's games have seen user growth and turnover; Brawl Stars has more than twice the number of daily active accounts and four times the turnover in the international market.
According to the analysis of BOCOM International Securities, it is expected that in the second quarter, with the steady operation of old games and the confirmation of turnover in the first quarter, coupled with the launch of the new game "Dungeons and Warriors: Origins" mobile game, Tencent's game revenue growth will turn positive, and its annual performance will be "low before and high after".
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