Tencent Holdings (00700.HK) HK) released its financial report for the first quarter of 2024 on May 14, benefiting from the rapid growth of the sprout business and the focus on efficiency improvement of traditional businesses, Tencent will maintain high-quality growth at the beginning of 2024, with gross profit increasing by 23%.
In the first quarter of 2024, Tencent achieved revenue of 159.501 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.
In terms of key business segments, Tencent's core businesses such as advertising and enterprise services have found new ways to play, and new businesses such as video accounts, mini programs, and SaaS have collectively exploded with new energy, jointly driving performance growth. In the first quarter, Tencent has repurchased a total of HK$14.8 billion, with an average daily repurchase amount of HK$824 million, a record high.
Ma Huateng, Chairman and CEO of Tencent, said that in the first quarter, the company's team adjustments in several leading games in the domestic market and international markets have achieved initial results, and the total game turnover has increased, laying the foundation for the recovery of game revenue growth in the next few quarters. The company continued to cultivate high-quality revenue sources, including WeChat Channels and Soyisou advertising, Mini Game platform service fees and Channels merchant technical service fees, which drove the growth of the Company's gross profit and operating profit to exceed the growth of revenue. The company is committed to returning surplus capital to shareholders, increasing repurchase efforts, executing share repurchases of more than HK$100 billion in 2024 as planned, increasing dividends, and continuing to invest in AI technology, platform enhancement and production of high-value content.
The gross profit of the three main businesses increased together, and multiple engines drove new growth
Since the second half of 2022, Tencent has achieved a new growth momentum of operating profit growth greater than gross profit growth and gross profit growth greater than revenue growth for six consecutive quarters.
According to the financial report, in the first quarter of 2024, Tencent's gross profit, operating profit (Non-IFRS) and net profit (Non-IFRS) grew by 23%, 30% and 54% respectively, significantly outperforming the revenue growth rate. As an important indicator of sustainable development, Tencent's gross profit growth rate has remained above 20% for four consecutive quarters. Since 2023, Tencent's revenue structure has been continuously optimized, the overall business has become more focused, and a large number of high-quality and competitive sprout businesses have emerged, which have jointly promoted the increase in gross profit.
Among the three core business segments, Tencent's gross profit from online advertising, fintech and enterprise services, and value-added services all increased year-on-year. Among them, the revenue of the online advertising business increased by 26% in the first quarter, and the gross profit increased by 66% year-on-year, mainly due to the new advertising revenue brought about by the rapid development of video accounts, mini programs, official accounts, WeChat search and other channels, as well as the improvement of revenue quality driven by AI technology. Tencent's online advertising revenue has maintained double-digit growth for six consecutive quarters, surpassing the industry average, and its revenue contribution has also increased from 13% in the same period in 2022 to nearly 17%.
The Fintech and Enterprise Services business, which represents the digital economy, grew 7% in revenue and 42% year-on-year in gross profit in the first quarter, mainly due to the strong growth of Channels live streaming technology service fees, as well as the increase in the commercialization of WeCom and other enterprise services.
The revenue of value-added services business in the first quarter decreased slightly year-on-year, but due to the increasing proportion of service fees of mini game platforms and the 3% increase in revenue of overseas games in the quarter, the increase in the proportion of high-quality revenue still drove the gross profit of the segment to increase by 5% year-on-year.
High-quality growth blossoms in multiple places, and the sprout business is growing vigorously
The high-quality, high-quality "sprout" business continued to bloom in the first quarter, relying on a strong ecological foundation and innovative technology-driven business to contribute growth vitality in different business segments.
According to the financial report, the combined number of monthly active accounts of WeChat and WeChat has further increased to 1.359 billion, and products such as video accounts, mini programs, official accounts, and WeChat search have contributed new momentum to high-quality growth.
In the first quarter of 2024, the total user time of Channels increased by more than 80% year-on-year, strengthening the live streaming ecosystem of Channels by expanding product categories and incentivizing more content creators to participate in live streaming. Mini Programs and Mini Games performed well in the first quarter, with the user duration of Mini Programs increasing by more than 20%, the average daily usage of non-game Mini Programs achieving double-digit percentage growth year-on-year, and the turnover of Mini Games increasing by 30% year-on-year.
Driven by AI technology, it is an important factor in promoting the high-quality growth of the "sprout" business. After the upgrade of the advertising technology platform, it not only provides all advertisers with a one-stop artificial intelligence advertising creative platform based on Tencent's hybrid model, but also significantly improves the recommendation accuracy and delivery efficiency of Tencent's advertising business, providing advertisers with satisfactory ROI (return on delivery).
SaaS products such as Tencent Meeting and WeChat Work have also deployed generative AI functions to better serve users. In the first quarter of this year, Tencent collaboration SaaS products such as WeCom, Tencent Meeting, Tencent Docs, Tencent Lexiang, Tencent e-Sign, and Tencent Questionnaire have all been connected to Tencent's hybrid model to achieve intelligent upgrades.
Tencent Hybrid has also made continuous efforts to help the intelligent upgrading of the industry, and has been applied to many industries such as automobiles, retail, education, finance and healthcare, bringing new growth points to the enterprise service business. In April this year, Tencent released the "Global Intelligence" solution for the automotive industry, working with more than 10 car companies to start industry model cooperation in multiple core scenarios such as R&D, production, and marketing.
This is inseparable from Tencent's long-term investment in basic research and development. According to the financial report, Tencent's R&D expenditure reached 15.6 billion yuan in the quarter, and the R&D investment in the six years since 2018 exceeded 285.3 billion yuan. Over the years, Tencent has been in the first echelon in terms of the total number of patent applications and the number of authorized patents in the world.
The enterprise service business has found a new way to play, and the game sector is squatting and accumulating
In addition to the blooming of new businesses, the existing core businesses have gradually found a way to solve problems. Among them, enterprise services have made breakthroughs in commercial growth in PaaS and SaaS, the two core cloud services, by focusing on the advantages of self-development. In the first quarter of this year, enterprise service revenue achieved a year-on-year increase of more than a dozen points.
In the PaaS field, Tencent Cloud's audio and video solutions have been ranked No. 1 in the Chinese market by IDC for six consecutive years, and have been favored by more customers in the media, entertainment, and live streaming industries at home and abroad in the first quarter.
In the SaaS field, WeCom and Tencent Meeting have also expanded their paying user base through technological updates and continuous product upgrades. At the beginning of the year, Tencent Meeting launched an AI assistant covering the entire process of meetings, which can complete a variety of complex tasks such as information extraction, content analysis, and conference management and control through simple commands, helping participants improve meeting efficiency.
Another traditional core business, the gaming sector, is actively accumulating strength and seeking breakthroughs. The total game turnover in the domestic market returned to a year-on-year growth rate of 3%, and the total game turnover in the international market increased by 34% year-on-year, surpassing the revenue growth, and the total game turnover achieved growth, laying a solid foundation for the re-growth of the game business.
In the domestic market, Tencent's annual turnover of more than 4 billion yuan in 2023 has reached 8, and the turnover of many games in the first quarter has increased significantly. Among them, the two top games, Honor of Kings and Peace Elite, benefited from the new commercialization rhythm and the improvement of game content design, and the turnover in March increased year-on-year. A number of games in the local market, such as "Golden Shovel Battle", "CrossFire Mobile" and "Dark Zone Breakout", hit record highs this season.
According to QuestMobile's statistics, in the first quarter of this year, the daily active users of "Golden Shovel Battle" have approached 20 million, ranking third among Tencent Games, second only to "Honor of Kings" and "Peace Elite". According to Sensor tower, the game's revenue in the first quarter of this year increased by 96% year-on-year. Sensor tower estimates that its game revenue surged by 90% month-on-month in February, the highest revenue since the game's open beta in July 2022. "Ark of Destiny" and "Valorant" have performed well since their launch in July last year, according to the Internet café game hot list released by Shunwang Technology, "Valorant" has been ranked in the top five in the hot list for 10 consecutive months, second only to "League of Legends" and "Crossfire" in Tencent games.
The overseas market is a new blue ocean for growth, and a number of key games have performed well. Among them, Supercell's games have achieved an increase in user volume 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 financial report, in the first quarter of 2024, Tencent's game revenue in the international market increased by 3% year-on-year, achieving revenue of 13.6 billion yuan, and continued to enhance its global competitiveness.
