Tech

Tencent posts first-quarter beat as users turn to hit mobile games during coronavirus lockdown

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Key Points
  • Tencent posted earnings that beat expectations thanks to its gaming business as well as better-than-expected performance in both advertising and fintech services.
  • Tencent's revenue totaled 108 billion Chinese yuan ($15.2 billion), up 26% year-on-year.
  • The company said hit smartphone titles "Honor of Kings" and "Peacekeeper Elite" helped its gaming unit grow and offset a decline in PC game revenue. 

In this article

A Tencent sign at the World Internet Conference (WIC) in Wuzhen, China, October 20, 2019.
Aly Song | Reuters

Tencent reported earnings that beat expectations thanks to a strong performance in its gaming business and better-than-expected results out of its financial technology and advertising units. 

Here's how Tencent did compared to Refinitiv consensus estimates:

  • Revenue of 108 billion Chinese yuan ($15.2 billion) vs. 101.4 billion yuan estimated. That's a 26% year-on-year rise.
  • Profit attributable to equity holders of the company hit 28.9 billion yuan vs. 23.83 billion yuan estimated. That's a 6% year-on-year rise.

"Games serve important roles in keeping players entertained and connected, especially during the stay-at-home period. For mobile games, our studios released attractive content and our publishing teams ran compelling in-game events and activities, resulting in higher DAU (daily active users)," Tencent said in a statement.

Online games revenue grew 31% year-on-year to 37.3 billion yuan. Total smartphone game revenue came in at 34.7 billion yuan for the March quarter. Analysts at investment bank Jefferies had expected a revenue figure of  31.6 billion yuan. Mobile games got a boost from Tencent's hit titles including "Honor of Kings," which saw new upgrades during the quarter, and "Peacekeeper Elite."

Meanwhile, PC game revenue fell around 17% to 11.8 billion yuan, which Tencent attributed to the temporary closure of internet cafes and the "soft performance" of a game called "DnF" which stands for "Dungeon & Fighter."

Strong ad growth

Around 16% of Tencent's revenue comes from advertising and analysts were expecting a slowing growth rate in this business given the broader slowdown in China's ad market. 

Research firm eMarketer said total ad spend in China in 2020 will total $113.67 billion, representing year-on-year growth of 8.4%, the slowest since it started tracking figures in 2011.

But Tencent's ad revenue rose to 17.7 billion yuan, up 32% year-on-year and surpassing the 19% growth seen in the fourth quarter of 2019. However, compared to the fourth quarter, ad revenue fell 12%. 

The Chinese giant recently increased the number of ads that were able to be displayed in the social media part of its WeChat messaging app, known as Moments. 

"Our online advertising revenue grew year-on-year, reflecting increased consumer time spent on our key apps during the stay-at-home period and the attractive ROIs (return on investments) we delivered to advertisers," Tencent said.

Social media advertising saw revenue up 47% year-on-year to 14.6 billion yuan, representing the bulk of total ad sales. This offset a decline in ads on Tencent's video and news feed platforms. 

Tencent said that it sees "some headwinds" for the online advertising industry this year.

Payments hit

Tencent's fintech and business services division, which includes cloud computing, accounts for a quarter of total revenue. It includes products such as WeChat Pay, a mobile payments service, as well as wealth management.

Revenue grew to 26.5 billion yuan in the March quarter, up 22% year-on-year but decreased 12% from the previous quarter.

That fall was due to lower revenue from payments and cloud as people stayed at home. 

Tencent said the year-on-year rise was due to "higher-margin revenue streams such as wealth management and lending" which continued to grow. 

The company also said there were "greater revenue contributions" from its cloud computing business.