In the first quarter, Tencent made a net profit of 50.2 billion yuan, and its stock price rose by more than 27% during the year! Two major games such as "King" are back to growth

Source of this article: Times Finance Author: Xie Silin

Image source: Photo by Times Finance reporter

On the afternoon of May 14, Tencent (00700. HK) announced its financial results for the first quarter of 2024. According to the data, during the period, Tencent achieved operating income of 159.501 billion yuan, a year-on-year increase of 6%; gross profit was 83.87 billion yuan, a year-on-year increase of 23%; Under non-international financial reporting standards, the net profit was 50.265 billion yuan, a year-on-year increase of 54%.

WeChat Channels and Mini Programs, which Tencent founder, chairman and CEO Pony Ma called "sprouts", are still the main drivers of Tencent's growth this quarter. Driven by them, Tencent's online advertising business, fintech and enterprise services businesses recorded growth of 26% and 7% respectively.

In contrast, the growth of Tencent's long-established game business has not yet been reflected in the earnings report. According to the data, affected by the decline in revenue from the local game market and social networks, Tencent's value-added service business recorded revenue of 78.629 billion yuan in the first quarter, a year-on-year decrease of 0.9%, becoming the only business among Tencent's four main businesses that declined year-on-year.

In this regard, Tencent explained it in the financial report as the result of the deferred recognition of financial revenue. In the first quarter of this year, the total turnover of games in the international market increased by 34% year-on-year, and the total turnover of the local game market increased by 3%, both of which increased.

Ma Huateng further pointed out that in the first quarter, the company's team adjustment in several leading games in the domestic market and the international market has 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. At the same time, Tencent will continue to cultivate high-quality revenue sources such as video accounts, Soyisou advertising, and mini game platform service fees, so as to drive the growth of the company's gross profit and operating profit to exceed the growth rate of revenue. It is also committed to returning surplus capital to shareholders, increasing buybacks, and increasing dividends.

Tencent's repurchase plan of more than 100 billion yuan is still going on as planned. According to the financial report, Tencent has repurchased a total of HK$14.835 billion in the first quarter, with an average daily repurchase amount of HK$824 million, a record high.

As of the close of trading on May 14, Tencent quoted HK$381.8 per share, up 27.26% from HK$300 per share at the beginning of the year.

"Glory of Kings" and "Peace Elite" returned to growth in March

In the local game market, Honor of Kings, which has been in operation for more than 8 years, and Peace Elite, which has been in operation for more than 6 years, have long been the two main contributors to Tencent's game revenue. However, as the operating hours continue to lengthen, the market has also increased concerns about their life cycles, and their turnover performance has attracted much attention from the market.

Tencent admitted in its financial report that due to the high base during the Spring Festival last year, the revenue of "Honor of Kings" in the current quarter decreased year-on-year; "Peace Elite" also fell year-on-year in revenue due to "weak commercial content" in the second half of last year. However, Tencent also stressed that this trend has been reversed, benefiting from the new pace of commercialization and the improvement of game content design. The above two games have achieved year-on-year growth in turnover in March 2024 and are beginning to recover gradually.

According to the estimation of Sensor tower, a third-party data monitoring agency, the revenue of "Peace Elite" in March this year increased by more than 20% year-on-year; "Honor of Kings" hit the highest single-day turnover in March due to the update of content such as the new gameplay "Hundred Refinements of Organs", and its revenue increased by 8% year-on-year in March.

In fact, as the game industry gradually enters the stock stage and shifts from extensive development to refined operation, the importance of evergreen games that can operate for a long time and provide performance support for game companies and a time window for new product development is becoming increasingly prominent.

At the end of last year, Guojin Securities was judged by the mobile games that have been online for more than 3 years and the average ranking of the iOS game best-selling list can be stable within 50 every year, and the current situation of domestic evergreen games is counted. Among them, Tencent is significantly ahead of other domestic game companies with a 50% share, and 9 of the 10 games on the list have been online for more than 5 years.

During the earnings call, Tencent's management further emphasized that "the company's revitalization of key key old games is still ongoing." But at the same time, we need to think more about how evergreen games can grow for a longer period of time, rather than stagnate. ”

"If a game that we think should be evergreen stalls, the problem is usually not the game itself, but the team that runs the game. We need to change the team, sometimes it's the mindset that changes, sometimes it's the people. When we make these changes, we quickly see positive results. Tencent management noted.

In response to market challenges, Tencent will continue to raise the bar for new games to market, focusing on smaller but larger and better new games.

This may point to the expansion of the evergreen game. Tencent's management used "The Battle of the Golden Shovel" as an example. Since its launch, the game has grown steadily, with new highs in turnover and daily activity. Taking Sensor towe data as an example, the revenue of "Golden Shovel Battle" in the first quarter increased by 96% year-on-year, and it has achieved double-digit growth for four consecutive quarters. According to QuestMobile's statistics, the game's daily active users in the first quarter have approached 20 million, second only to "Honor of Kings" and "Peace Elite" in Tencent Games.

Tencent has also mentioned "Dark Zone Breakout" in its financial reports for many consecutive quarters. The game launched its first military and national tide tactical set in February this year, and Sensor tower estimates that its game revenue surged by 90% month-on-month in February, the highest revenue recorded since the game's open beta in July 2022.

It's just that the growth of these games has not completely offset the impact of the decline in revenue of "Honor of Kings" and "Peace Elite" for the time being. According to the financial report data, Tencent's local game market revenue fell 2% year-on-year to 34.5 billion yuan in the first quarter of this year.

In contrast, Tencent Games' performance in overseas markets is more remarkable. In the first quarter, the turnover of Tencent Games' international market increased by 34% year-on-year, and the turnover increased by 3% to 13.6 billion yuan. This result is mainly due to the resurgence in popularity of Supercell's Brawl Stars, which has more than twice the number of overseas daily active accounts and more than four times the turnover of the same period last year.

Looking ahead, DNF Mobile Game, which will be launched on May 21, has been widely considered to be an inflection point for Tencent Games' growth in the second quarter. Some investment institutions expect that the game's revenue in the first year is expected to reach 5.8 billion yuan, equivalent to 4% of Tencent's game's revenue in the local market.

Tencent Video added more than 9.28 million paid members

In the first quarter, the combined monthly active users of WeChat and WeChat were 1.359 billion, a year-on-year increase of 3%. The WeChat ecosystem continues to lift Tencent forward, and the video account with high hopes is still in the C position.

Taking the advertising business as an example, the financial report data shows that Tencent's online advertising business recorded 26.506 billion yuan in the first quarter of 2024, a year-on-year increase of 26%. This is mainly due to the growth of WeChat video accounts, mini programs, official accounts and Soyisou. During the reporting period, the total user time spent on Channels increased by 80% year-on-year. The total user time spent by Mini Programs increased by 20% year-on-year, and the average daily usage of non-game Mini Programs increased by a double-digit percentage year-on-year.

However, Tencent's relevant management pointed out in the earnings call that the company judged that the overall advertising environment is still challenging, and the advertising business is expected to continue to grow, but the growth rate in the next few quarters may not be as fast as in the first quarter. Of course, Tencent's advantage is still solid, and compared with the short video platforms of its competitors, the ad loading rate of Channels is only a quarter of theirs.

Under such circumstances, Tencent began to increase the development of the commercialization of Channels, trying to expand the ecology of live streaming of Channels by expanding product categories and incentivizing creators to bring goods, earn commission income from them, and find new breakthroughs in monetization. For example, on April 29, Channels released the entry policy for local life merchants, including catering and wine and tourism, to meet the consumption and business needs of users and merchants in Channels, and support the development of Channels' live streaming business.

Coupled with the increase in the commercialization of WeChat Work and other enterprise services, Tencent's enterprise service revenue achieved a year-on-year growth rate of more than 10 points in the first quarter of this year, and drove Tencent's fintech and enterprise service business revenue to 52.3 billion yuan year-on-year due to the slowdown in offline consumer spending growth of only a single-digit percentage growth.

In addition, Tencent's breakthrough in the entertainment content sector is also worth paying attention to. In January this year, Ma Huateng highlighted Tencent Video's accumulation in the past year in his speech at Tencent's annual meeting. He pointed out that "The Long Season", "Three-Body Problem" and "Flowers", the three particularly outstanding (dramas) were all made in the past few years.

"It is also very worthwhile to concentrate resources on the quality of the products. The key to supporting the entire long video membership is a few big dramas, if not every month, at least one every quarter. Ma Huateng pointed out.

And with the release of this quarter's financial report, the market finally got a glimpse of the benefits behind the hit series. According to the financial report data, popular self-made TV series and animations such as "Flowers" drove the number of paid members of long videos to increase by 8% year-on-year to 116 million. In this conversion, the number of new paid members of Tencent Video in the first quarter exceeded 9.28 million.

In the second quarter, Tencent Video has also made a "big drama" reserve. The market has been looking forward to the 5-year-old "Celebrating More Than Years 2" will be launched on May 16, and the series has accumulated more than 16 million reservations, becoming the first film and television series on the whole network to exceed 10 million reservations. This blockbuster work, which has opened up the IP development link for Tencent, is worth looking forward to how much increment it can bring to Tencent.