27%, 33%, 39%, 44%, 54%, Tencent's net profit growth under non-IFRS from the first quarter of 2023 to the first quarter of 2024 is getting higher and higher.
On the afternoon of May 14, Tencent Holdings (0700. HK, stock price HK$381.80, market capitalization HK$3,596.362 billion), revenue in the first quarter of 2024 achieved operating income of 159.501 billion yuan, gross profit of 83.87 billion yuan, a year-on-year increase of 23%; Net profit (Non-IFRS) was 50.265 billion yuan, a year-on-year increase of 54%.
The reporter of "Daily Economic News" noted that this is the first time that Tencent's single-quarter net profit (Non-IFRS) has exceeded 50 billion yuan, and it is also the sixth consecutive quarter that Tencent has achieved operating profit and gross profit growth rates that have exceeded revenue growth. The growth in profitability is mainly due to Tencent's continuous exploration of potential in the WeChat ecosystem, which has led to the rapid growth of high gross margin revenue sources such as advertising revenue from Channels and Soyisou, service fees for Mini Game platforms, and technical service fees for Channels merchants. In the first quarter, Tencent's gross profit margin increased to 53% from 45% in the same period last year, an increase of 8 percentage points year-on-year.
The above-mentioned high-margin business is also known as the "sprout" business within Tencent. In the first quarterly report, Tencent specifically announced the new progress of these businesses: in the first quarter, the total user time of Channels increased by more than 80% year-on-year, the turnover of Mini Games increased by 30% year-on-year, and the user time of Mini Programs increased by more than 20%.
In terms of profitability, the gross profit margins of Tencent's three main business segments, value-added services, online advertising, financial technology and enterprise services, were between 34% and 54% in the quarter, an increase of 3, 13 and 12 percentage points respectively year-on-year.
Advertising is the fastest-growing
In terms of business, among Tencent's three major business segments, value-added services achieved revenue of 78.629 billion yuan in the first quarter, basically the same as the same period last year. Among them, in terms of games, game revenue in the international market increased by 3% year-on-year, while game revenue in the domestic market decreased by 2% year-on-year; Social network revenue decreased by 2%, mainly due to the increase in revenue from paid music and long video memberships, live streaming services on video accounts, and service fees from mini game platforms, while revenue from live music and live game services declined.
Online advertising revenue in the first quarter increased by 26% year-on-year to RMB26.5 billion, mainly driven by growth in WeChat Channels, Mini Programs, Official Accounts and Soyisou. This is due to increased user engagement and driven by AI-powered ad tech platforms.
Fintech and corporate services revenue in the first quarter increased 7% year-on-year to RMB52.3 billion. Among them, the revenue of fintech services increased by a single-digit percentage year-on-year, mainly due to the slowdown in the growth of offline consumer spending and the decrease in cash withdrawal revenue, while the growth of wealth management service revenue was strong. The year-on-year growth rate of enterprise service business revenue of more than 10 points was due to the increase in cloud service revenue and technical service fees of Channels merchants.
The reporter of "Daily Economic News" noticed that from the perspective of revenue growth, the advertising business of the above three major businesses grew the fastest, reaching 26%. Tencent pointed out in the earnings report that the main impetus is that the company has upgraded its ad tech platform to help advertisers deliver ads more effectively, and has launched generative AI-powered creative tools to all advertisers.
The reporter further learned from Tencent that after the upgrade of Tencent's advertising technology platform, it can not only provide all advertisers with a one-stop artificial intelligence advertising creative platform based on Tencent's hybrid model, but also significantly improve the recommendation accuracy and delivery efficiency of Tencent's advertising business, and provide advertisers with satisfactory ROI (delivery return).
On the other hand, from the perspective of gross profit margin improvement, the most obvious increase among the three major businesses is the fintech and enterprise service business, which represents the To B business, which increased its gross profit margin to 46% from 34% in the same period last year, an increase of 12 percentage points. According to Tencent, this was mainly due to the increase in the contribution of financial services with high gross margins and technical service fees from Channels merchants, the increased commercialization of WeCom and other enterprise service businesses, and the improved cost-effectiveness of cloud services.
The "Sprouts" business contributes to high margins
Overall, Tencent's gross profit in the first quarter was 83.87 billion yuan, a year-on-year increase of 23%. The increase in gross profit was primarily due to the rapid growth of high gross margin revenue streams. Tencent said in its financial report: "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 exceed revenue growth." ”
Specifically, the total user time spent on Channels increased by more than 80% year-on-year, strengthening 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.
The reporter of "Daily Economic News" noticed that the above-mentioned businesses continue to grow with the help of the WeChat platform and provide services at relatively stable platform costs, bringing higher additional income to Tencent, so they are also regarded by Tencent as a business that makes WeChat, an "old tree", sprout a "new sprout".
At the earnings briefing held on the evening of May 14, Tencent President Martin Lau said: "In the first quarter, the drivers of high-quality growth such as WeChat Soyiso, Video Accounts and Mini Games became clearer because we reduced low-quality products and distracted businesses to focus our energy. Soyisou, Mini Programs and Channels have a deep ecological connection with WeChat, and are an ever-expanding content ecosystem. We believe that Tencent's growth will continue to benefit from the continued growth of these high-quality revenues over time, which is still in the early stages of the commercialization cycle. ”
On the other hand, in the To B business, Tencent's first quarterly report mentioned that the commercialization of WeCom and other enterprise service businesses has increased. The reporter of "Daily Economic News" noticed that in the first quarter of this year, Tencent enterprise-level products (SaaS) such as enterprise WeChat, Tencent Meeting, Tencent Docs, Tencent Lexiang, Tencent e-Signature, Tencent questionnaire and other Tencent enterprise-level products (SaaS) have all been connected to Tencent's hybrid model to achieve intelligent upgrading and provide value-added space for the commercialization of SaaS products.
Martin Lau said at the performance briefing: "From providing SaaS products for free for a long time in the past to starting to monetize fees, it can be said that we have achieved initial success in the commercialization of SaaS, but the fee base is relatively low. So I think the current state of affairs is more of an early validation of the fact that we can let businesses pay for services in China. ”
"Tencent still has a long way to go to increase SaaS revenue. I believe that with continued investment, there will be an inflection point in the future. At the moment, these services actually provide us with a good connection with our enterprise customers and can facilitate our other cloud and enterprise services. Martin Lau said.
In addition, the compensation of Tencent employees has always attracted a lot of attention.
Tencent's total compensation cost in the first quarter was 26 billion yuan, and as of the end of the first quarter, Tencent had 104787 employees. Based on this calculation, Tencent pays about 82,700 yuan per employee per month.
It is worth mentioning that Tencent has two major social platforms. As of March 31, the combined monthly active accounts of WeChat and WeChat increased by 3% year-on-year to 1.359 billion, while the number of mobile monthly active accounts of QQ decreased by 7% year-on-year to 553 million.
On May 15, Tencent's stock price rose 4.67% to close at $51.51. On May 14, the closing price of Hong Kong stock Tencent was HK$381.8 per share, with a total market capitalization of about HK$3.6 trillion.
Source: National Business Daily