“Long-termism” Tencent: game stability, revenue structure in all parts of the world

On March 18, Tencent released its fourth quarter and full-year results for 2019, with Q4 Tencent’s revenue of 105.767 billion year-on-year growth of 25% and net profit (Non-IFRS) of 25.484 billion, up 29% YoY, exceeding market expectations, which is the first time Tencent’s quarterly revenue exceeded the 100 billion yuan mark. Refresh the history. For the full year of 2019, Tencent’s revenue was 377.289 billion year-on-year, while net profit (Non-IFRS) was up 22% year-on-year, beating market expectations.

Produced . . . Sohu Technology

Author . . . Song Wanxin

Edited . . . Wang Yisu

As Tencent’s first annual report since the first anniversary of its organizational structure and its first anniversary, the financial results show that Tencent’s success in transforming the Internet industry has been outstanding, with Tencent Cloud maintaining high-digit growth, with annual revenues of more than 17 billion, and the average daily transaction volume of commercial payments exceeding 1 billion, and monthly active accounts exceeding 800 million. Tencent games are also gradually back on track, while Tencent videos have matched the number of ai Qiyi members.

Tencent’s “basic” social business, WeChat and Wechat combined monthly active accounts of 1.165 billion, up only 1.2% month-on-month, while QQ monthly active accounts fell 7.5% year-on-year to 647 million.

Overall, Tencent’s four main sector games, fintech and corporate services, advertising, social networkrevenue accounted for between 19% and 29%, the revenue structure tends to balance.

B-side transformation

Since Tencent’s organizational restructuring in September 2018, the newly disclosed TO B business – fintech and corporate services sector has emerged. Full-year results showed that its share of revenue contribution has climbed from 23% in 2018 to 27% in 2019, making it Tencent’s second-largest business support.

Revenue from the fintech and corporate services business in 2019 increased 39% year-on-year to $101.4 billion, and the results showed that the increase was driven by an increase in business payments due to the number of active daily users and the number of transactions per capita. In the fourth quarter of 2019, Tencent’s daily trading volume of commercial payments exceeded 1 billion, with more than 800 million active accounts per month and more than 50 million active merchants per month. Tencent’s wealth management platform has increased its asset holdings by more than 50% year-on-year, and the number of customers has more than doubled year-on-year.

In addition, the popularity of small program products has also stimulated users to form a higher frequency and larger-scale trading behavior, which in turn promoted the development of the overall Tencent financial services. Tencent’s small program scored 800 billion yuan in 2019, up 160 percent year-on-year, with the fastest growth in e-commerce and retail.

“Small programs already have a commercial ecological basis and user base, user stay time continues to improve, WeChat platform has developed a variety of advertising forms to meet the needs of traffic, advertising infrastructure has been set up, in the short term advertising will still be the main way of small programs, long-term commercial value of more than 10 billion.” Guoxin Securities analysis said.

On the basis of nearly 1.2 billion WeChat users, small programs with enterprises WeChat, live, service number, etc. have initially demonstrated the commercial ecology, and from last year WeChat friends expansion, open WeChat video number in-house testing, WeChat to open subscription number pay grayscale testing and a series of actions, WeChat commercialization is still slow, But space is opening.

Tencent Cloud revenue exceeded RMB17 billion in 2019, up 86.8% YoY, and total cloud revenue for 2018 was RMB9.1 billion. By contrast, Alibaba’s revenue growth in 2019 was 66% YoY, but total revenue reached 36.4 billion yuan, which is less than half that of Tencent.

In December, Tencent Cloud announced that it had achieved annual revenue of more than 10 billion yuan in the third quarter, and in the first half of last year, Tencent Cloud became the first company in China to have more than one million servers and one of five companies with more than one million servers in the world. In addition, Tencent’s peak bandwidth is the first company in China to reach 100T.

On January 17, 2020, Tencent’s QQ products were fully clouded. For the social scene with fission effect of the monthly living more than 700 million “Big Mac”, QQ on the cloud burst is very strong, so the sudden response to the cloud is also more demanding. And for QQ, the cloud is not just the use of the cloud IaaS capabilities, but the cloud’s IaaS and PaaS capabilities are fully reflected in QQ application scenarios.

This is not the end of Tencent’s “self-study cloud”, according to the target set in early 2019, Tencent will be all incremental business in the cloud within three years, 2020 goal is to achieve 50% incremental cloud.

Taking the government cloud as an example, in 2019 Tencent’s government affairs cloud project covered 28 provincial administrative districts and 1 overseas area, with a total of 151 projects, up 55.7% YoY; Of the 151 projects, there were five “billion-dollar bills”, of which Tencent jointly won a number of bids for guangdong government projects with an order amount of 1.045 billion yuan.

In the recent outbreak, Tencent quickly launched the “cloud office family bucket package”: enterprise WeChat, Tencent conference, Tencent documents and other nearly 10 products to work together, coupled with the wide range of health code landing, will further promote Tencent in the government cloud and other areas of rapid development.

Game back

As a significant part of Tencent’s revenue, the gaming business has suffered a setback in 2018, due to regulatory uncertainty, the game version of the release in 2018 suspended the pace, resulting in Tencent’s many games can not appear in front of the public.

Although Tencent’s gaming business has recovered compared to the previous year, the increase has not been significant, with online gaming revenue rising 10% to $114.7 billion in 2019, which the company attributed to the revenue contribution of domestic Mobile game “King’s Glory” and “Peace Elite” and the overseas game PUBGG Contributions to games such as Mobile.

Among them, the start of chicken commercialization of “Peace Elite” from last May began to go online and charge, although the launch time is not long, but there is already a head-on trend, according to the February App Annie monthly index ranking, Tencent’s “Peace Elite” in the world’s top games and China’s hot games in both the top income rankings.

According to the data, Tencent won a total of 32 game numbers in 2019, with 24 online numbers, 9 of which ranked first in the free list. In future product reserves, the financial results also revealed that Tencent’s major gaming studios such as Tianmei and Photon, as well as Riot Games and Supercell, have their own stocks of products.

It is worth noting, however, that online gaming’s share of revenue fell to 28.6 percent in 2019, up from 40 percent in 2018. At the same time, value-added services, including online games, fell 3 percent to total revenue compared to 2018.

In response to the growth bottleneck caused by the increasing saturation of mobile game in China, Tencent is actively looking for growth opportunities overseas in 2019 to expand the market through investment, distribution agents and other means.

On October 21 last year, Tencent announced that it had increased its stake in Finnish mobile gaming giant Supercell, which owns popular games such as Clash of The Tribes and The Royal War. After the merger of Supercell, earnings showed that Tencent’s overseas gaming revenue more than doubled year-on-year in the fourth quarter of 2019, accounting for 23% of online gaming revenue.

On December 4th Tencent’s national version of Nintendo’s game console was officially launched, bringing in partners to formally enter the console game space, while Tencent also partnered with Pokemon Company, which holds Pokemon Ip, to develop a new Mobile game. In this regard, there is a view in the industry that the main significance of Tencent’s partnership with Nintendo is not in proxy Switch, but in the development of Tencent’s own console game.

At present, the global epidemic is heating up, online game activity has been pushed up. Tencent’s games, such as PUBG MOBILE and Call of Duty Mobile, are among the top sellers, according to the U.S. 2 000 IOS Game Bestseller selling list in February. Sensor Tower estimates that “The Jedi Survive” is expected to generate more than $776 million in 2019, with an average monthly $64.7 million, while Call of Duty is expected to be available from October to December 12, 2019, with a total revenue of $95 million.

Overseas markets have become the focus of Tencent’s game expansion, to a certain extent to make up for the end of the tour “underground city and warrior” and other revenue decline.

Long video bites, short video continues to put in

One notable highlight of this quarter’s earnings is that Tencent’s video paid membership has grown to 106 million, which means tencent video has matched the number of aichi-friendly members, with Youku becoming the only platform in the video giants with less than 100 million members. Tencent Video and Aichi continue to bite.

More importantly, the company’s full-year operating loss fell to less than RMB3 billion, while a reported operating loss in 2019 was RMB9.3 billion, three times that of Tencent Video, according to its previous earnings report. In response, industry voices said that behind this may be Tencent in preparation for the spin-off of the video business to go public.

At present, Tencent’s digital content sector, Wenwen Group, Tencent Music has completed the split listing arrangements, only Tencent Video and Microvision two business esquire remains in the parent company. If the spin-off is completed, Tencent could use it to ease some of the overcosting business.

In March last year, Tencent PCG integrated its video architecture and announced the withdrawal of Penguin Film and Television, Tencent’s film and television production division, and renamed Scripted Content Production and UnScripted Content Production, respectively, for episodes and variety businesses. In UnScripted content production department, Tianxiang Studio, Tianma Studio and other teams all accommodate it.

After such a financial report, Tencent Video and Aichi Art giants in 2020 on the content, channels and membership competition will be more glued.

In addition, Tencent also disclosed microvision related information, its fourth quarter daily active users increased by 80% month-on-month, daily average video upload volume increased by 70% month-on-month, but did not release specific data. Tencent said it would continue to invest in microvision for many years, “expects the development of short video business will require many years of investment, and Tencent’s short video business is currently in its infancy, but is confident about the long-term prospects of the business.” “

Tencent executives said at the earnings conference call that short video needs to form vertical products, use Tencent’s resources and platform to open up to users, and social platform integration to bring traffic, including Tencent’s investment in long video, IP can have an impact on short video, the future Tencent to integrate products, but also hope to bring more advertising revenue.

Tencent’s media advertising decline driven by a 15% decline to 15.48 billion yuan, but social advertising maintained a high trend and Tencent’s advertising revenue grew mainly from social advertising. The results showed revenue rose 33% to $52,897 million. Among them, in addition to WeChat friends circle and WeChat small program advertising inventory and exposure increase, advertising video is considered to be the main reason for revenue contribution.

Tencent is gradually realizing the consumption of the Internet and industrial Internet two-legged walk, into a sense of “long-termism”, which is the result of Tencent’s strategic adjustment. Taking into account the balanced development of various businesses, Tencent’s profitability is gradually improving, more imagination space and trial and error space will follow.