Chinese gaming and entertainment giant Tencent reported fourth quarter revenues which exceeded expectations though profits fell short, and it categorized the hit that Covid-19 has dealt to its businesses as “short-term.”
Why it matters: Tencent renewed its commitment to broadening revenue streams beyond gaming and content to cloud services, digital lifestyle, remote work, and online healthcare in the report.
- It promised “a multi-year investment into short form video,” a territory dominated by Kuaishou and Bytedance’s Douyin.
- A strong performance in mini programs shows it will continue to compete with Alibaba and Meituan on digital lifestyle services.
Details: Tencent reported on Wednesday net income during the fourth quarter of RMB 21.6 billion ($3.1 billion) on revenue of RMB 105.8 billion, which rose 25% year on year. Profits, however, fell below consensus estimates. Cost of revenues increased by 23% compared with the same period a year earlier, a jump which Tencent attributes to higher content, fintech, and channel costs.
- Online game business grew 25% year on year to RMB 30.29 billion, driven by revenue growth in mobile games including “Peacekeeper Elite” and its overseas version, “PUBG Mobile.”
- International gaming revenue more than doubled on an annual basis, accounting for 23% of total gaming revenue.
- Tencent is gaining traction in enterprise services. Fintech and Business Services revenues jumped 39% year on year to RMB 29.92 million in Q4.
- Tencent Meeting, a video conferencing tool, exceeded 10 million DAUs within two months of its launch in December. James Mitchell, Tencent’s chief strategic officer said in an earnings call, “we’re very focused on market coverage and we’re not worried about the monetization yet.”
- Mini programs generated more than RMB 800 billion in transaction volume during 2019. Fresh fruit and vegetable providers saw a steep uptake in users.
- Covid-19 has given Tencent an opportunity to burnish its corporate social responsibility credentials. It touted its health codes as the most used during the period, with 8 billion visits.
- During the outbreak, WeChat Pay’s revenue has taken a hit with Chinese consumers remaining at home and the shuttering of brick-and-mortar business.
Context: Tencent took part in 108 deals last year, and its president Martin Lau said to a gathering of more than 500 Tencent-backed companies that the company would step up investment overseas and into smart retail and payment platforms.
- The company acknowledged that it faces a tougher macro environment amid uncertainties caused by the trade war between Beijing and Washington.
- During Q4, Bytedance and the NBA spat cut into its advertising revenue.
- Covid-19 has brought many businesses to a halt, but Tencent’s online offerings help it weather the fallout.