In a surprising turn of events, Tencent managed to surpass analyst expectations for both revenue and profit in the first quarter. The Chinese tech giant reported a revenue of 159.5 billion Chinese yuan ($22 billion), exceeding the 158.4 billion yuan anticipated. Additionally, the profit attributable to equity holders of the company was 41.9 billion yuan, compared to the expected 36.64 billion yuan. These figures represented a year-on-year increase of 6% in revenue and a staggering 62% in adjusted net profit, making it Tencent’s fastest growth rate since the March quarter of 2021.
What is particularly intriguing about Tencent’s performance in the first quarter is its path to recovery. The company faced its first annual revenue decline in 2022, prompting a series of cost-cutting measures and divestment from non-core businesses. This strategic shift allowed Tencent to refocus on its core gaming division, as well as key areas such as advertising and cloud computing. As a result, investors have been quick to reward Tencent, with shares rising by 30% since the beginning of the year.
While Tencent experienced a 2% decline in revenue from its China gaming business in the first quarter, it marked an improvement from the 3% fall observed in the previous quarter. The company attributed this decline to weak monetizable content from “Peacekeeper Elite” and a high base from the Chinese New Year for its popular game “Honour of Kings.” On the international front, Tencent reported a 3% increase in revenue from its games, driven by the resurgence in popularity of games from its studio Supercell and the growing player base of PUBG Mobile. Despite these positive developments, Tencent acknowledged that the growth in its gaming division remains weak, with plans to improve revenue in future quarters.
Apart from its gaming segment, Tencent’s other business divisions also played a crucial role in its first-quarter performance. The online advertising division saw a 26% year-on-year revenue increase, attributed to enhanced engagement on WeChat and improvements in Tencent’s AI-powered advertising infrastructure. The gross profit for the ad business surged by 66% year-on-year to 14.5 billion yuan. Meanwhile, the fintech and business services unit, which includes WeChat Pay and cloud computing, reported a 7% revenue rise and a 42% gross profit jump year-on-year. Tencent highlighted the cultivation of high-quality revenue streams such as advertising in Video Accounts and Weixin Search, Mini Games platform service fees, and eCommerce technology service fees as key drivers of growth.
Tencent’s stellar performance in the first quarter of the year showcases its resilience, strategic focus, and ability to adapt to changing market conditions. By capitalizing on its core strengths in gaming, advertising, and business services, Tencent has managed to drive impressive revenue and profit growth, much to the delight of investors. As the company looks ahead to future quarters, it will be interesting to see how Tencent continues to innovate and evolve in the ever-changing landscape of the tech industry.
Leave a Reply