Produced by Tiger Sniff Commercial Consumer Group
Author|Huang Qingchun
Visual China
There is no doubt that games and social networking are the two big trees that Tencent's business pumps blood; Originally, only one (game) was a "cash cow", but now the other (WeChat) has also become a "cash cow".
On May 14, Tencent presented its unaudited consolidated results for the first quarter ended March 31, 2024. According to the financial report, in 2024Q1, Tencent's revenue increased by 6% year-on-year to 159.501 billion yuan (market estimate of 158.81 billion yuan), and non-IFRS net profit increased by 54% year-on-year to 50.265 billion yuan (market estimate of 43 billion yuan), a record high in the past decade; Non-IFRS operating profit increased 30% year-on-year to RMB58.619 billion, and gross profit increased 23% year-on-year to RMB83.87 billion.
For a "behemoth" like Tencent, all core indicators in 2024Q1 are on an upward curve, not only the net profit greatly exceeds market expectations, but also the growth rate of net profit, gross profit, and operating profit all outperform the growth rate of revenue, which is really rare.
If the timeline is extended, Tencent's gross profit growth rate from 2022Q4 to 2024Q1 has been greater than the revenue growth rate for 6 consecutive quarters, with the year-on-year gross profit growth rate of 7%, 19%, 22%, 23%, 25%, and 23%, with a year-on-year growth rate of more than 20% for four consecutive quarters.
CICC pointed out in its latest research report that historically, there have been two typical states of Tencent's growth:
- First, the platform business is developing healthily and rapidly (financial enterprise services, Moments advertising, video accounts, mini programs, etc.), and games are developing normally.
- Second, the healthy and rapid development of the platform business and the rapid growth of games, such as in 2017 and 2020, the investment in Tencent is both certain and flexible.
Nowadays, Tencent's growth logic is more focused on "stable quality and increment", and the current investment logic is naturally closer to the first state - it is not surprising why Tencent's stock price has risen by more than 30% since the beginning of this year.
WeChat began to carry Tencent and ran
Tencent's financial report today, WeChat has more and more "roles".
Slowly rolling out Tencent's 2024Q1 financial report, it will be found that the gross profit of the three core business segments of online advertising, financial technology and enterprise, and value-added services has achieved year-on-year growth; Among them, the advertising business in particular grew the fastest, with a year-on-year increase of 26% to 26.5 billion yuan.
Tiger Sniff Research Tencent's financial report found that this is mainly due to two points:
First, platform upgrade (the company upgraded its ad tech platform to help advertisers deliver more effectively) + tool empowerment (launched generative AI-driven creative tools to all advertisers); Second, WeChat has made great efforts (the rapid development of video accounts, mini programs, official accounts, WeChat search and other rapid development has brought new advertising revenue).
Although it is more euphemistic, if you think about it carefully: how many times has this advertising platform been upgraded, and this AI empowerment is also a number of tool modules, after all, it is WeChat that has carried most of the new increments - a reference data is that Tencent disclosed in 2023Q2 that the contribution of video accounts to the advertising business reached 3 billion, accounting for more than 12%.
According to the financial report, as of March 31, 2024, the combined monthly active accounts of WeChat and WeChat increased by 3% year-on-year to 1.359 billion, a net increase of 16 million month-on-month - a well-deserved first national APP, and you can see how terrifying the penetration of WeChat is by looking at the latest domestic census data.
Moreover, WeChat's evolution from a "social channel" to a content ecosystem is accelerating: the video accounts, mini programs, official accounts, Soyisou and other products that have grown out of the WeChat ecosystem are all contributing new momentum to the entire Tencent Group.
- In 2024Q1, the total user duration of Channels increased by more than 80% year-on-year, and the user duration of Channels has now exceeded twice that of Moments.
- Secondly, in the first quarter of 2024Q1, Mini Programs and Mini Games performed well, 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.
In particular, mini games (no need to download an App, "parasitic" in the WeChat and Douyin mini program ecology) are becoming a new territory for bytes and WeChat staking ground.
Turning the time pointer back to April 24th, the WeChat Open Class-IAA Mini Game Special posted some steep data:
- At the user ecological level: in 2024Q1, the DAU of WeChat Mini Games increased by 20% year-on-year, the MAU (number of monthly active users) of IAA Mini Games reached 500 million, and the number of developers exceeded 400,000.
- As for the commercialization level, in 2024Q1, WeChat Mini Game advertisers will increase by 35% year-on-year and double their purchase consumption, and it is expected that the overall commercial volume of WeChat IAA Mini Games will exceed 10 billion yuan in 2024.
Tiger Sniff believes that the game between WeChat and Douyin in the territory of small games cannot be limited to interpretation from the game level, and to understand the logic of the two continuous increases, it is necessary to jump out of the game thinking.
To a certain extent, WeChat and Douyin's bet on mini games is not a simple layout of the game track, but the use of mini games as a strong interactive advertising pool - the characteristics of mini games are click-to-play, which can make more full use of advertising exposure and shorter links, and high-frequency, rigid demand, scenario-based, and large DAU can complete the commercial internal cycle through advertising components.
In this regard, Tencent President Martin Lau said at the earnings briefing held on the evening of May 14 that the drivers of high-quality growth such as WeChat search and video account and mini games in the first quarter became clearer, because we reduced low-quality products and distracted businesses to make our energy more focused.
"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. Martin Lau said.
In addition, advertising spending in the gaming, internet services and consumer goods sectors also has a steep upward curve.
Mainly due to Tencent Video's bet on a number of popular self-made dramas and animations in 2024Q1, such as "Flowers" and "Ice Hunting", the number of paid members of Long Video increased by 8% year-on-year to 116 million.
If you count "Celebrating More Than Years 2" set on May 16, the data of Tencent Video in 2024Q2 should be able to squeeze into the "long face" of the financial report again.
Fintech and enterprise services are Tencent's "new favorites" in recent years, with revenue of 52.302 billion yuan in Q1 2024, a year-on-year increase of only 7.4% (lower than market expectations), the lowest year-on-year growth rate in the past five quarters. It accounted for 33% of total revenue, accounting for more than 30% for 12 consecutive quarters.
The reason why the business only grew at a single-digit rate in 2024Q1 was explained by Tencent was due to the slowdown in offline consumer spending growth and the decrease in withdrawal revenue. But as soon as the conversation changed, the financial report also wrote, "Driven by the growth of technical service fees for video account merchants, Tencent's enterprise service revenue has also achieved a year-on-year growth rate of more than a dozen points."
I don't hear it, the video number is now a "firefighter", and he can be on top wherever he needs it.
It didn't take long to see Tencent Chairman and CEO Ma Huateng boasting about the video number in the 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 outpace revenue growth."
Has Tencent Games rebounded?
As for Tencent's traditional basic business, the revenue of value-added service business in 2024Q1 decreased by 0.9% year-on-year to 78.6 billion yuan.
Among them, the game business performed mediocre on paper: revenue of 48.1 billion, a slight decrease of 0.4% compared with the same period last 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 gross profit of the segment still increased by 5% year-on-year.
Looking at the local market first, Tencent's game revenue fell 2% to 34.5 billion, largely due to financial deferrals (Tencent's game revenue in the current quarter is not immediately recognized as revenue, and the game revenue disclosed in the financial report often reflects the business situation one or two quarters ago).
Taking 2024Q1 as an example, the Spring Festival in 2023 will be in January, and the Spring Festival in 2024 will be in February, resulting in a shorter time for the recognition of game turnover to revenue this year than last year (there were more than 2 full months last year to transfer to revenue, and the deferred flow was recognized into revenue, but this year there is only about a month and a half to recognize revenue).
In addition, 2023Q1 is the first quarter after the epidemic is relaxed, and all aspects of the social economy are recovering rapidly, and there is also the superimposed impact of a high base - so from the perspective of actual flow performance, the performance of this quarter is actually better than that of the same period last year (2023Q1).
Moreover, considering that deferred revenue recognition will greatly affect the judgment of the outside world on the game business, Tencent has rarely disclosed the specific turnover growth of the game business in 2024Q1.
During the quarter, the domestic market turnover returned to growth, up 3% year-on-year, mainly due to the record turnover of a number of local market games such as "Golden Shovel Battle", "CrossFire Mobile Game" and "Dark Zone Breakout" - which undoubtedly gave the market some positive signals.
The deep-seated reason lies in the self-repair of Tencent Games in the past year.
After the release of the earnings report, Ma Huateng said, "In the first quarter of 2024, we have achieved initial results in the team adjustment of several leading games in the domestic market and international markets, and the total game turnover has increased, laying the foundation for the recovery of game revenue growth in the next few quarters. ”
Specifically, in 2023, there will be 8 key games with an annual turnover of more than 4 billion yuan in the Tencent Games ontology market, and the turnover of many games in the first quarter will grow significantly.
Among them, the turnover of the two leading games of "Honor of Kings" and "Peace Elite" both returned to year-on-year growth in March this year; A number of games in the local market, such as "Golden Shovel Battle", "CrossFire Mobile" and "Dark Zone Breakout", hit a record high this season.
This coincides with the trend of third-party measurement by mainstream game organizations:
- According to QuestMobile statistics, the daily active users of "Golden Shovel Battle" in the first quarter of 2024 have approached 20 million, ranking third in Tencent Games, second only to "Honor of Kings" and "Peace Elite";
- According to gamma data, Tencent Games' products occupy 6 of the top 10 mobile games in 2024Q1;
- Sensor Tower estimates that in Q1 2024, "Golden Shovel Battle" revenue increased by 96% year-on-year, and "Dark Zone Breakout" revenue surged 90% quarter-on-quarter in February (the highest revenue recorded since the public beta in July 2022).
In addition, the two PC games "Ark of Destiny" and "Valorant" have performed well since their launch in July 2023, according to the "Game Hot List" released by a third party, "Valorant" has ranked in the top five in the hot list for 10 consecutive months, second only to "League of Legends" and "CrossFire" (in Tencent Games).
Looking at the international market, Tencent Games is quite interesting.
On the one hand, the global gaming market will be slowly recovering in 2024. According to Gamma Data's "Quarterly Report on China's Game Industry from January to March 2024", the revenue of the global game industry in 2024Q1 has shown a steady growth trend; Sensor Tower data also shows that consumer spending in the global mobile game market increased by 3.6% in 2024Q1, reversing the decline in 2023 - as a result, Tencent Games' revenue in the international market increased by 3% year-on-year to 13.6 billion yuan, thanks to the recovery of the game market and the contribution of multiple products.
On the other hand, Brawl Stars and PUBG MOBILE have made their mark in the international market:
- First, Brawl Stars' turnover in the first quarter increased by 4 times year-on-year, and the number of daily active users exceeded twice that of the same period last year;
- The second is that "PUBG MOBILE" continues the recovery momentum of last year; According to Sensor Tower's estimates, "PUBG MOBILE" firmly topped the download list of China's overseas mobile games in the first quarter of this year, and its revenue increased by more than 30% year-on-year in the first quarter, which made Tencent's turnover in the international market increase by 34% in the first quarter.
However, the market is more concerned about Tencent's "Dungeons & Warriors: Origins" (DNF mobile game), which is scheduled to be launched on May 21, and investors expect that the revenue in the first year is expected to reach 5.8 billion yuan, equivalent to 4% of the revenue of Tencent Games' domestic market.
In view of the above reasons, Morgan Stanley, Goldman Sachs and many other investment banks are optimistic about the performance prospects of Tencent Games this year, and it is expected that "Dungeons & Warriors: Origins" will be the "new trump card" of the inflection point of the growth of the local game market in the second quarter.
UBS is even more optimistic that Tencent Games' international market revenue is expected to increase by 9% and 11% year-on-year this year and next, and the total revenue is expected to exceed 60 billion yuan next year.
Write at the end
On May 14, OpenAI announced the latest GPT-4o - under the wave of rapid iteration of AI, companies with tigers are looking for an entrance to climb upward, and Tencent is no exception.
On the same day as OpenAI, Tencent announced a low-key announcement about the hybrid model: the hybrid Wensheng diagram model has been fully upgraded and open sourced. The model has been released on the Hugging Face platform and Github, including a complete model such as model weights, inference code, and model algorithms, and is available for free commercial use by enterprise and individual developers.
Because, Tencent has figured out how to play the To B business by taking advantage of the situation - 2024Q1 WeCom, Tencent Meeting, Tencent Docs, Tencent Lexiang, Tencent e-Sign, Tencent Questionnaire, etc. have all been connected to Tencent's hybrid model.
Tiger Sniff has learned that more than 400 businesses and scenarios within Tencent have been connected to the hybrid model, which is widely used in many industries such as automobiles, retail, education, finance and healthcare, which is inseparable from Tencent's long-term investment in basic research and development.
According to the financial report, Tencent's R&D expenditure in 2024Q1 reached 15.6 billion yuan - if the timeline is further extended, since 2018, Tencent has invested more than 253.22 billion yuan in R&D, ranking first among Chinese Internet companies in terms of the total number of patent applications published and the number of patents granted in major countries and regions around the world.
This is largely due to the fact that China's mobile Internet has reached a mature period where users and traffic tend to peak, and supervision will focus more on the promotion and construction of the industrial Internet, which means that technology has reached a critical period of platform restructuring ecology, and Internet giants like Tencent must dare to jump into the AI wave (including technology ecological iteration, R&D investment, etc.), so as to win a ticket to the future.
#我是虎嗅商业. Huang Qingchun, deputy head of the consumption and mobility group, pays attention to entertainment and social networking, games, video and other fields, and industry professionals communicate with WeChat: 724051399, and news clues can also be emailed to [email protected]
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