Behind Tencent's Q1 net profit: the length of Channels users increased by more than 80% year-on-year

Reporter Li Jing reports from Beijing

On May 14, Tencent Holdings (00700. HK) announced its financial results for the first quarter of 2024. During the reporting period, Tencent achieved revenue of 159.501 billion yuan, a year-on-year increase of 6%; Gross profit was RMB83.870 billion, representing a year-on-year increase of 23%, and gross profit margin increased to 53% from 45% in the same period last year. Profit attributable to equity holders of the Company was RMB41.889 billion, representing a year-on-year increase of 62%; Basic earnings per share was RMB4.479.

Among them, Tencent's most eye-catching performance is online advertising, achieving revenue of 26.5 billion yuan, a year-on-year increase of 26%. Tencent said in its financial report that the growth of online advertising revenue was mainly driven by the growth of video accounts, mini programs, official accounts and Soyisou. Among them, the total user time spent on Channels in the quarter increased by more than 80% year-on-year.

Li Chengdong, founder of Dolphin Club, said that Tencent Advertising achieved a growth of more than 20% in the first quarter of 2024, indicating that the economy is recovering, consumption is recovering, and brand owners have confidence in consumption. "Because Tencent's advertising revenue is biased towards brand advertising, it can reflect whether the brand is optimistic about consumption expectations."

Tencent's management also said in the earnings call that "the growth of Channels is still in a very early stage, and it is currently only about a quarter of the advertising volume of our main short video competitors. ”

Online advertising revenue grew 26% year-over-year

In the first quarter of 2024, Tencent achieved revenue of 159.501 billion yuan, a year-on-year increase of 6%. In terms of business segments, the most eye-catching growth was the online advertising business segment, which achieved revenue of 26.506 billion yuan in the quarter, a year-on-year increase of 26%.

Tencent said in its financial report that the growth of online advertising revenue was mainly driven by the growth of video accounts, mini programs, official accounts and Soyisou. In addition, advertising spending increased in all major sectors except the automotive industry, with significant growth in gaming, internet services and consumer goods.

Zhang Shule, an expert at the think tank of China Economic Media, pointed out to the reporter of "China Business Daily" that the advertising scenes of video accounts, mini programs, and mini games have been opened, which has raised the ceiling of Tencent's advertising revenue again, and new scenes and more accurately segmented user portraits have also stimulated advertisers' desire to invest.

"It's still very early days for Channels to grow. Given the mixed economic situation and the mixed sentiment of advertisers, we expect advertising growth to be slower in the coming quarter than in the first quarter. But overall, we are still very constructive in terms of advertising revenue growth, and we will further increase our market share. Tencent's management said in the earnings call.

However, at the same time, it can be seen that Tencent's largest business segment, value-added services, has shown negative growth in the first quarter of 2024, with revenue of 78.629 billion yuan, a year-on-year decrease of 0.9%. This part of the business mainly includes the game business and the social network business. Among them, the international game business achieved revenue of 13.6 billion yuan, a year-on-year increase of 3%; The local game business achieved revenue of 34.5 billion yuan, down 2% year-on-year; Social network revenue was 30.5 billion yuan, down 2% year-on-year, and the decline was mainly related to the decline in revenue from music live streaming and game live streaming services.

Zhang Xiaorong, president of the Deepin Technology Research Institute, believes that the traffic of the general environment has peaked, market competition has intensified, and the saturation of the game and live broadcast markets has reached a certain level, making it more difficult for Tencent to grow in these businesses.

"If evergreen games are stagnant, then the problem is usually not with the game, but with the operational side of the game." Tencent management said.

In the past, Tencent has tried to adjust the operation team to revive some key games. In the financial report, Tencent said that its team adjustments in several top games in the domestic market and international markets have achieved initial results, and the total game turnover has increased, which can lay the foundation for the recovery of game growth in the next few quarters.

Regarding the operation strategy of new and old games, Tencent said: "Our strategy is to raise the quality threshold of new games to the market, and focus on games with fewer but higher quality and more potential." Because we realize that not all new games can be 'evergreen games'. ”

In addition, in the first quarter of 2024, the revenue of Tencent's fintech and enterprise services business, Tencent's second largest business segment, increased by 7% year-on-year to 52.3 billion yuan, which is the lowest year-on-year growth rate of this part of the business in the last five quarters. Tencent explained that the slowdown was mainly due to the slowdown in the growth of offline consumer spending and the decrease in withdrawal revenue. However, in the quarter, the revenue of enterprise service business achieved a year-on-year growth rate of more than ten points, mainly due to the growth of cloud service revenue and technical service fees of Channels merchants.

Reduce costs, increase efficiency and increase profits

Although the growth of Tencent's top two business segments in the first quarter of 2024 has slowed down in terms of revenue growth, from a profit perspective, both gross profit and net profit have achieved a significant year-on-year increase.

According to the financial report, in the first quarter of 2024, Tencent's gross profit, operating profit (Non-IFRS) and net profit growth rates were 23%, 30% and 62%, respectively, significantly outperforming the revenue growth rate. In addition, Tencent's gross profit growth rate has remained above 20% for four consecutive quarters.

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, and its revenue contribution has increased from 13% in the same period in 2022 to nearly 17%.

Gross profit of the Fintech & Enterprise Services business increased by 42% year-on-year, 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.

From a cost perspective, Tencent's cost of revenue in the first quarter of 2024 was 75.6 billion yuan, down 8% year-on-year. sales and marketing expenses were 7.5 billion yuan, a year-on-year increase of 7%; general and administrative expenses were 24.8 billion yuan, up 1% year-on-year; The financial cost was 2.8 billion yuan, a year-on-year increase of 7%.

In the first quarter of 2024, Tencent achieved a net profit of 41.889 billion yuan, a year-on-year increase of 62%; Net profit (Non-IFRS) was 50.3 billion yuan, a year-on-year increase of 54%.

"The sharp increase in Tencent's net profit may reflect the improvement of Tencent's profitability in many non-advertising businesses, such as games, social networks and financial services," Zhang told reporters. In addition, it may also reflect Tencent's efforts to control costs and improve efficiency. However, we also need to pay attention to any specific factors that may affect this growth, such as the macroeconomic environment, market competition, etc. ”

In addition, Tencent also disclosed the role of AI in promoting business. Tencent said that the drive of AI technology 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).

According to the financial report, 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 encouraging 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.

"While competitors are also adopting AI, we believe the biggest beneficiaries will be companies with a lot of under-monetized user time." Tencent management said.

On the same day as the release of the financial report, Tencent's hybrid Wensheng diagram model announced a comprehensive upgrade and open source.

(Editor: Zhang Jingchao Review: Li Zhenghao Proofreader: Zhang Guogang)