Tencent Q2 Sales and Profit Miss Estimates Despite Double-Digit Growth

BEIJING, August 16 (TiPost)— Tencent Holdings Ltd., missed estimates at the top and bottom line in the second quarter of the year despite double-digit yearly growth.

Credit：Visual China

Tencent’s revenue rose 11% year-over-year (YoY) to RMB149.2 billion (US$20.6 billion) in the quarter ended June 30, missing the Wall Street expectation of RMB152.021 billion. While the revenue edged down 1% from the previous quarter, the company still posted positive yearly growth for three quarters in a row and a YoY increase of more than 10% for the second straight quarter. The first quarter of the year also saw an 11% YoY increase, the first double-digit growth since the third quarter, 2021.

Tencent recorded profit attributable to equity holders, or the net income, of RMB26.17 billion in the June quarter with a 41% YoY growth, the fastest profit rise since late 2021. But the net income lagged the expected RMB32.3 billion, partly due to the regulatory fine of RMB2.99 billion on its fintech business. The profit was basically flat quarter-over-quarter (QoQ). The March quarter witnessed the profit declined 76% QoQ to RMB25.8 billion, missing analysts’ projection.   

As the world’s leading gaming company, Tencent’s powerhouse showed less-than-expected momentum, mainly owing to slowdown in domestic market. Value-added services, the segment includes Tencent’s key business games, generated RMB74.2 billion with a 4% YoY rise and a 4% QoQ decrease of 6%, compared with the analysts’ forecast of RMB77.72 billion.

Domestic games brought RMB31.8 billion, roughly in line with revenue a year ago, while analysts estimated revenue could gain over 5% YoY to RMB33.51. Tencent said revenue of domestic games, dragged by less highly commercial content in biggest games, was a temporary phenomenon and should resume YoY growth in the current quarter. The game publisher has released Chinese version of blockbusters including Valorant and Lost Ark in July, and games like King’s Chess, Codename: Breaking Dawn, a fighting game featuring Honor of King elements, have obtained approval for sale in China have started at least one round of tests.

Tencent delivered much stronger growth from overseas games. International games revenue increased 19% YoY to RMB12.7 billion in the second quarter, supported by contributions from VALORANT, Triple Match 3D and Goddess of Victory: NIKKE, which have performed well in the overseas market in the past six months. However, revenue of Goddess of Victory: Nikke slowed down compared with the strong performance in the first quarter.

Online advertising became an outstanding business with the fastest growth for Tencent in the June quarter. Its revenue jumped 34% YoY to RMB25 billion, beating the projected RMB22.97 billion. Tencent said the business outpaced the overall industry’s growth rate, which was attributed to enhancements to machine learning systems powering its advertising platform and robust demand for Video Accounts advertisements. Advertising spending on Tencent platforms grew at a double-digit YoY rate from every major advertiser category, except transportation. Video Accounts contributed more than RMB3 billion of ad revenue that quarter, a milestone since the Shenzhen-based company rolled out in-feed advertisements in the popular Video Accounts in July, 2022.

The Video Accounts live streaming service also plays a key role in growth of digital economy. Tencent said WeChat user engagement benefitted from user time spent growth across Video Accounts, Mini Programs and Moments. Video Accounts total user time spent almost doubled a year earlier and Mini Programs exceeded 1.1 billion monthly active users (MAUs), including a notable contribution from Mini Games, which generate distribution and advertising revenues with high margins and platform economics.

Revenues from fintech and business services increased 15% YoY to RMB48.6 billion in the second quarter, lower than the expected RMB50.64 billion. Fintech services revenue achieved double-digit year-on-r growth, driven by expansion in both offline and online commercial payment activities. Business services revenue improved to a low double-digit year-on-year growth rate, driven by fees generated from Video Accounts live streaming eCommerce transactions and modest growth in cloud services. The latest launch of the Tencent Cloud Model-as-a-Service (MaaS) library of models and solutions is expected to bring additional growth source for the cloud business.

Tencent Chairman and CEO Pony Ma, also known as Ma Huateng, expressed great expectation on the video feature of WeChat last December. Ma labeled it as the most eye-catching business under the Weixin Group (WXG) , even touted it as the fundamental hope of the whole company. Guosen Securities considered the e-commerce with an internal circulation as the second growth curve of the short video platform, and expected it to become a new growth source for Video Account advertising.

At the filling on Wednesday, Ma said his company achieved notably rapid growth in advertising business, benefitting from deploying machine learning on its advertising platform and from Video Accounts monetization. Ma vowed to continue to drive innovation, including through generative artificial intelligence (AI), where the company is providing a library of models to partners via its MaaS offering, as well as refining our proprietary foundation model.

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