Tencent’s Q2 Net Profit Jumps 33%, Video Account Usage Time Almost Doubles

Tencent‘s net profit in the second quarter increased by 33% year-on-year, and the usage time of video accounts nearly doubled.

In this financial report, the advertising business, video accounts, and overseas gaming business have become highlights. Meanwhile, after cost reduction and personnel downsizing measures implemented last year, Tencent‘s profit growth rate in the second quarter exceeded its revenue growth rate.

The financial report shows that the monthly active accounts and daily active accounts for Tencent‘s mobile and PC games have both achieved year-on-year growth. Recently, Tencent launched two large-scale PC games, “Fearless Contract” and “Ark of Destiny”, on the Chinese market.

However, due to the reduced release of highly commercialized content by Tencent Games in the second quarter, its domestic market revenue has declined compared to the previous period. The management at Tencent believes that this is only a temporary phenomenon and expects the revenue from Tencent Games in the domestic market to recover and show year-on-year growth in the third quarter.

In the field of artificial intelligence, Tencent will continue to provide model libraries to external customers through Tencent Cloud Model as a Service (MaaS) in the future. This solution can help clients in industries such as tourism and public services develop industry-scale models with low cost and high efficiency. At the same time, Tencent will also continue to build proprietary foundational models.

In terms of revenue structure, the second quarter revenue of value-added services increased by 4% year-on-year to $10.14 billion. Among them, social network revenue increased by 2% year-on-year to $4.06 billion, mainly due to the growth in WeChat mini-games and Tencent Music Entertainment Group‘s paid membership service revenue, partially offset by the decline in Tencent Music Entertainment Group‘s live streaming and game streaming service revenue.

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The revenue of the domestic gaming market is relatively stable at 4.35 billion US dollars. Thanks to the contributions from games such as “VALORANT,” “Triple Match 3D,” and “Goddess of Victory: Niji,” Tencent‘s international gaming revenue increased by 19% to 1.74 billion US dollars, with a growth rate of 12% after excluding the impact of exchange rate fluctuations.

On a month-on-month basis, Tencent Games has seen a decline in revenue both in the international and domestic markets. Considering that the first quarter is traditionally a peak period for revenue in the gaming industry, with more game activities and commercial content releases during the Spring Festival, it is normal for revenue to decline in the second quarter.

The second-quarter revenue of the online advertising business increased by 34% year-on-year to $3.42 billion. This mainly reflects the strong demand for WeChat Channels advertisements, as well as the impact of a lower revenue base in the second quarter of last year. Among them, WeChat Channels’ advertising revenue in the second quarter exceeded $410 million.

The total user usage time of Video Account has nearly doubled compared to the previous year, mainly due to the growth in usage time of Video Account, Mini Programs, and Moments. Among them, the monthly active account number of Mini Programs has exceeded $150 million.

On a month-on-month basis, the revenue from the online advertising business achieved a growth of 19%. Tencent stated that this was mainly due to seasonal factors such as the “618” shopping festival, and Tencent also expanded its market share in industries such as e-commerce and clothing.

Tencent stated that thanks to the machine learning capabilities of its Tencent Advertising Platform and the commercialization progress of Video Account, its advertising business has achieved significant rapid growth. Apart from the automotive transportation industry, all key advertiser industries have seen double-digit year-on-year growth in spending on Tencent Advertising Platform.

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In the second quarter, the revenue of financial technology and enterprise services increased by 15% year-on-year to $6.64 billion. Among them, the revenue from financial technology services achieved double-digit year-on-year growth, mainly due to the increase in online and offline commercial payment activities. The revenue from enterprise services also achieved double-digit year-on-year growth, mainly driven by income generated from video live-streaming e-commerce transactions and a slight increase in cloud services.

In addition, Tencent has completed self-inspection and corresponding rectification work for Tenpay and has enhanced the compliance operation capability of its payment business.

In terms of income costs, if calculated as a percentage of total revenue, the proportion of income costs in the second quarter decreased from 57% in the same period last year to 53%. This is mainly due to the commercialization promotion of high gross margin businesses such as video accounts, as well as a series of cost reduction and efficiency improvement measures implemented by the entire company.

Tencent‘s general and administrative expenses decreased by 3% year-on-year to $3.47 billion in the second quarter, mainly due to a reduction in employee costs (including share-based compensation expenses). As of June 30, 2023, Tencent Group had a total of 104,500 employees, a decrease of approximately 1,700 compared to the first quarter.

In terms of research and development, Tencent‘s R&D expenditure in the first half of the year was 4.26 billion US dollars, including 3.59 billion US dollars in employee benefits expenses. In comparison, Tencent‘s R&D expenditure in the first half of last year was 3.45 billion US dollars.