01, the video number began to compete against Douyin
Tencent's business structure is undergoing drastic changes.
In recent quarters, as Tencent's game revenue has slowed, the WeChat business group, represented by Channels, has shown stronger earning power, gradually changing from "hope" to "pillar", supporting Tencent's family.
On May 14, Tencent Holdings announced its financial report for the first quarter of 2024, with operating income of 159.501 billion yuan in the quarter, a year-on-year increase of 6%. The most eye-catching in the financial report is the net profit of 41.889 billion yuan, a year-on-year increase of 62%; Under non-IFRS, net profit was 50.265 billion yuan, up 54% year-on-year – it is worth noting that this is also the first time in Tencent's history that the net profit (Non-IFRS) in a single quarter exceeded 50 billion yuan.
What businesses have driven Tencent's net profit to soar? Several key information points have aroused market attention.
First, value-added service revenue, which accounts for 49% of Tencent's business revenue (of which game revenue accounts for about 30% of Tencent's total revenue), decreased by 0.9% year-on-year - but the turnover of mini games increased by 30% year-on-year; Second, in 2023, the video account, which will be regarded as the "hope of the whole village" by Ma Huateng, will have a year-on-year increase of more than 80% in user time in the first quarter, and the user time of Mini Programs has increased by more than 20%.
Tencent said in its financial report that the growth of Tencent's gross profit and operating profit exceeded the growth rate of revenue by WeChat Channels and Soyisou advertising, mini game platform service fees and Channels merchant technical service fees.
As the most intuitive factor to test product loyalty, the "user time" performance of Channels is particularly eye-catching. Since the beginning of this year, what positive actions has the video account made?
A number of respondents told City Boundary that Channels are converting users in the WeChat ecosystem at a steady pace. "Channels are stealing TikTok's time. Although the richness of the content needs to be improved, it is already very kill time. ”
Tencent's internal attention to Channels is also increasing.
According to the observation of "City Boundary", since the beginning of this year, Channels has been moving frequently: Channels live broadcast has been put on a more active agenda. On April 23, "Make a Friend" entered the video account. On WeChat, the order entry of the video account has also been added under the "me" page. In addition, according to internal feedback, the official of the video account has begun to manage the manual response rate to improve the response speed of customer service.
In the field of short videos, which have become a red sea, the relatively "restrained" WeChat is secretly stimulating the growth rate of video accounts. At the earnings call, Tencent executives said that in the first quarter, the advertising revenue of Channels increased by more than 100% year-on-year, and the click-through rate and number of views increased.
In addition, in the first quarter of 2024, Tencent's online advertising business contributed revenue of 26.5 billion yuan, a year-on-year increase of 26%, gross profit increased by 66% year-on-year, and gross profit margin was as high as 55%.
The growth of the advertising business also benefited from the growth of WeChat video accounts, mini programs, official accounts and Soyisou. Tencent said in its earnings report that advertising spending in all major industries except the automotive industry increased, with significant growth in advertising spending in gaming, internet services and consumer goods.
As Tencent's largest revenue contributor, the "Fintech and Enterprise Service Business", which accounts for about 33% and represents the digital economy, has also become an important source of Tencent's enterprise service revenue and significantly improved the profit margin of the business after including the service fee of Channels live broadcast technology.
Therefore, it can be said that WeChat has single-handedly driven the profitability of the entire group, whether from the advertising business or cloud service level.
02. The game is waiting for a stronger hit
While the WeChat ecosystem, represented by Channels, has gained confidence, Tencent's other traditionally strong business, "games", is still in a long "recovery period".
According to the financial report data, Tencent's game revenue in the domestic market fell by 2% year-on-year to 34.5 billion yuan. In this regard, the reason given by Tencent is the impact of "revenue deferral".
However, the "weakness" of the head game is not a problem that can be avoided. At the earnings conference, Tencent's relevant executives said, "We believe that when some evergreen games are making weak progress, we need to make adjustments to the team." Mentality and personnel must be adjusted, and changes must be made very decisively. If we can't make changes soon, we'll make further adjustments. ”
In the domestic market, the revenue of "Honor of Kings" and "Peace Elite" both declined year-on-year. Tencent's explanation for this is: they were affected by the high base during the Spring Festival last year; and the impact of "weaker commercial content" in the second half of 2023.
In March this year, "Honor of Kings" and "Peace Elite" benefited from the new commercialization rhythm and the improvement of game content design, and the turnover in March recovered, achieving year-on-year growth. However, the financial report also said that this part of the reduced revenue was offset by the "increment" of the revenue contribution of "Valorant", "Ark of Destiny" and "Golden Shovel Battle".
When the "evergreen game" was weak, Tencent gradually relied on overseas markets. According to the financial report, Tencent's game revenue remained at 48.1 billion yuan in the first quarter; Among them, the game revenue in the international market increased by 3% to 13.6 billion yuan, accounting for 28% of the overall game revenue. In addition, the total game turnover in the domestic market recovered year-on-year growth of 3%, and the total game turnover in the international market increased by 34% year-on-year, outpacing the revenue growth.
The growth in total turnover is mainly due to the contribution of portfolio companies: for example, the popularity of Supercell's Brawl Stars has rebounded, and the number of overseas daily active accounts has exceeded 2 times that of the same period last year, and the turnover has exceeded 4 times that of the same period last year.
Tencent executives also said that the company is restarting some important top games. In the future, Tencent will continue to promote its existing strategy and launch games with "explosive" potential: games such as "Dungeons & Warriors: Origins" and "One Piece" are planned to be launched this year.
In April this year, Tencent Games announced that Dungeons & Warriors: Origins (i.e., DNF Mobile Game) would be officially launched on May 21. Many analysts have high hopes for the game, hoping that it can become a new variable that will change Tencent's game revenue. Some institutions predict that the revenue of DNF mobile games in the first year is expected to reach 5.8 billion yuan, equivalent to 4% of Tencent's game revenue in the local market last year. But it remains to be seen if it can be the next hit.
In contrast, Mini Games have given Tencent a lot of surprises and are showing growth potential.
According to the financial report, the total user time of Tencent Mini Program increased by more than 20% year-on-year, and the turnover increased by 30% year-on-year - the service fee of the Mini Game platform is becoming a new source of considerable revenue and growth for the "value-added services" sector.
At the Mini Game Developer Conference on June 16, 2023, the WeChat Mini Game team said: The scale of WeChat Mini Game developers has exceeded 300,000, the total number of users has exceeded 1 billion, and the monthly active users have reached 400 million, creating a record high - and in the past six months, WeChat Mini Game traffic monetization and advertising promotion have maintained a 30% growth.
In addition, according to the WeChat open class press conference in April, IAA (casual) mini games are the main contributors to the growth of users in the market, and live streaming of video accounts has gradually become an important growth method for IAA mini games.
In the first quarter of 2024, the daily activity of Mini Games increased by 20% year-on-year, the monthly active users of IAA Mini Games were 500 million, advertisers increased by 35% year-on-year, and the traffic increased by 15%, and as IAA Mini Games continued to grow, it is expected that the total commercial volume of IAA Mini Games will exceed 10 billion in 24 years.
Author | Zhao Zikun
Edit | Li Yuan
Operations | Liu Shan