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Tencent releases Q1 2018 financial report: Games drive growth, more subsidies for mobile payments promised
The numbers for one of China’s largest internet companies are in. Tencent released two financial reports on May 16th: the unaudited results of the first quarter of 2018 and audited year-round performance as of March 31, 2018.
Tencent’s Chairman and CEO Pony Ma (Ma Huateng), President Martin Lau (Chi Ping Lau), Chief Strategy Officer James Michelle, and CFO John Lo (Shek Hon Lo) presented the report to analysts during a phone call on May 17th.
One of the main topics of the meeting was mobile payments, TechNode’s Chinese sister site is reporting. WeChat Pay saw three-digit growth during Q1 of this year while gross margin ratio reached 25%. But Tencent is facing challenges: new regulations on mobile payments were introduced April 1st and the rivalry with Alibaba’s own mobile payment system is heating up.
Martin Lau said that WeChat Pay is getting more popular among merchants while its market share is also large and sustainable. The competition is fierce and competitors are offering many subsidies. Tencent was active in subsidies to occupy the market which affected the company’s revenue conversion rate among other promotional activities, he explained. The bright side: these promotions will increase the size of the market which is beneficial to all parties.
How well did Tencent do in Q1 2018?
The total revenue of Tencent in the first quarter of 2018 was 73.29 billion RMB ($11.69 billion), a year-on-year increase of 48%. The operating profit went up by 59% YoY and was RMB 30.69 billion ($ 4.88 billion). The operating profit margin increased by 39% over the same period last year. The profit for the period was RMB 23.97 billion ($3.81 billion), an increase of 65%.
Value-added services grew by 34% in the first quarter of 2018 to RMB 46.87 billion. Online game revenue grew 26% to RMB 28.77 billion. The growth was largely driven by Tencent’s smartphone games like King of Glory as well as newcomers such as QQ Speed Mobile (QQ飞车手游) and Miracle MU: Awakening (奇迹MU：觉醒). Revenues from PC games remained stable.
Social network income increased 47% to RMB 18.99 billion. The growth was boosted by the rise of digital content services (such as live streaming, video streaming, and Tencent’s KTV music service). This section was also boosted by the sales of virtual objects within games.
Internet advertising revenue grew by 55% in the first quarter of 2018 to RMB 10.68 billion. Social and other advertising revenue grew by 69% to RMB 7.39 billion mainly benefiting from the expansion of the advertisers’ base, raising the rate of advertising on WeChat Moments, a function similar to Facebook’s feed. Tencent’s mobile advertising also saw cost per click (CPC) growth. CPC is an Internet advertising model in which advertisers pay the publisher when the ads are clicked.
Media advertising revenue increased by 31% to RMB 3.29 billion mainly thanks to the growth of video playback and the growth of Tencent’s video revenue driven by innovative advertising in self-made content (bloggers, online stars, etc.).
Other businesses grew by 111% in the first quarter of 2018 to RMB 15.96 billion. Payment related services and the expansion of cloud services were the main drivers of this growth.
The domestic and international version of WeChat had 1.4 billion MAU (monthly active users), a year-on-year increase of 10.9%. The number of active accounts in QQ reached 805 million, down 6.4% from the same period last year.
The full report is available here (in Chinese).