Tencent saw one of the fastest-growing quarters in years in both profits and revenue during the second quarter, largely due to a surge in the mobile games income and despite the Covid-19 pandemic and the US-China tech war.
Why it matters: Tencent is one of the world’s largest companies, and its second quarter stats show that even geopolitics can’t slow down the juggernaut. The company’s focus on online gaming and investments in multiple regions and sectors helped Tencent defy expectations and increase profits.
Details: A decline in media advertising revenues weighed on Tencent’s growth this quarter even as popular mobile games brought in the big bucks, according to its earnings release. A US ban on Wechat transactions is not expected to slow revenue from gaming, the company’s biggest source of revenue.
- Tencent’s operating profit in the second quarter increased 38% year on year to RMB 37.63 billion ($5.32 billion), compared with 26% year on year growth to RMB 27.52 billion ($4.00 billion) in the same period a year ago.
- Revenue increased 29% on an annual basis to RMB 114.88 billion ($16.23 billion), well past the $16.00 billion estimate compiled by Zacks Equity Research.
- Online game revenues grew 40% year on year to RMB 38.29 billion, driven by growth in revenue from mobile games including “Honor of Kings” and “Peacekeeper Elite” in both domestic and international markets.
- Social network revenues increased 29% annually, largely due to digital content services like Huya, a game-streaming platform Tencent owns a controlling stake in.
- Media advertising revenues fell 25% year on year in the second quarter. Tencent cited “lower advertising revenues from Tencent Video as a result of weak brand advertising demand amid the challenging macro environment, as well as delayed content production and releases.”
- Tencent said that it does not expect Trump’s executive order banning Wechat transactions to materially weigh on its future growth.
- “The US represents less than 2% of our global revenue. Within that, advertising in the US should be less than 1% of our total advertising revenue,” James Mitchell, Tencent’s Chief Strategy Officer, said during the earnings call.
- According to Mitchell, the order only covers US jurisdiction, meaning US companies selling to Chinese markets will still be able to advertise on Tencent’s platforms in China, making it even less likely that the ban will weigh on ad revenue.