- Chinese tech giant Tencent on Wednesday reported better-than-expected quarterly revenue, helped by advertising growth within its growing “Video Accounts” business.
- Yet ads still account for less than a fifth of Tencent’s total revenue – which barely grew in the fourth quarter and fell throughout the whole of 2022 as Covid controls slashed economic growth.
- Tencent has shared some general details of how it is developing AI, but has not shared specific upcoming products in that category.
Chinese tech giant Tencent released quarterly results Wednesday.
Norphoto | Norphoto | Getty Images
BEIJING — Chinese tech giant Tencent on Wednesday reported better-than-expected quarterly revenue, helped by advertising growth within its growing “Video Accounts” business.
Total revenue for the quarter ended December 31 was 144.95 billion yuan ($21.07 billion), higher than the 143.89 billion yuan estimated by FactSet.
Tencent’s online ad revenue overall grew 15% to 24.7 billion yuan, beating FactSet’s estimate of 22.18 billion yuan — and growing for the first time since the second quarter of 2021. Most of its ad spending came from e-commerce companies, the company said, quickly — Transportation of consumer goods and toys.
Video accounts exist within the WeChat messaging and social media app and are a way for individuals and businesses to share short videos and live broadcasts on the platform. The average monthly user number of WeChat in China and abroad increased 3.5% from a year ago at 1.31 billion accounts in the fourth quarter.
Tencent said in-feed ads for video accounts generated revenue of more than 1 billion yuan in the fourth quarter. It said the time a user spent on video accounts was 1.2 times more than it spent on WeChat Moments, which is similar to Facebook’s News Feed.
“This ad unit allowed them to free up revenue from e-commerce, which did quite well,” James Lee, US and China internet analyst at Mizuho Securities, said on CNBC’s “Squawk Box Asia.” It has a neutral rating on Tencent and a price target of HK$400.
Tencent shares in Hong Kong were trading up 5% Thursday, at HK$366.40.
WeChat also contains small programs that allow users to purchase products from in-app merchants. Tencent said the time spent on mini-programs nearly doubled in the last quarter to also exceed the time spent on Moments — generating “several trillion yuan” in total merchandise value last year.
GMV measures the total value of sales over a given period of time.
Li said that this level of GMV makes Tencent “one of the largest e-commerce platforms” that the company has begun to monetize. “I think this has very good potential going forward.”
Tencent has not disclosed the exact GMV numbers. It was not clear how the figures compared to Alibaba, which generated 540.3 billion yuan in GMV during the annual shopping festival in November 2021, the latest available.
Advertising spend is often an indicator of economic sentiment.
James Mitchell, Tencent’s chief strategy officer, said on an earnings call that companies selling low-priced goods are “already seeing a broad-based recovery.” “For companies that sell items with higher ticket prices, it varies from category to category.”
He said those merchants and advertisers generally expect consumption to pick up later this year. Mitchell said that many viewers of video accounts do not use existing short video applications such as Kuaishou or ByteDance’s Douyin.
Yet ads still account for less than a fifth of Tencent’s total revenue – which barely grew in the fourth quarter and fell throughout the whole of 2022 as Covid controls slashed economic growth.
The larger revenue segment, which includes the giant’s gaming business, fell 2% to 70.4 billion yuan in the fourth quarter, in line with FactSet’s estimate of 70.2 billion yuan. In April 2022, Beijing began regularly approving new game titles again after a hiatus of more than six months.
Tencent’s second-biggest source of revenue, financial technology and business services revenue fell 1% to 47.2 billion yuan, lower than FactSet’s estimate of 49.49 billion yuan.
“FinTech Services revenue growth was slower than the previous quarter due to the COVID-19 outbreak that led to a pause in payment activity,” Tencent said in a statement. “Business services revenue was down year-over-year as we cut back on loss-making activities.”
In the first three months of 2023, the average daily business payment volume rebounded by double digits from a year ago as consumption recovered, the company said.
With the “normalization” of the regulatory environment in China, the company sees opportunities to develop financial products such as wealth management, loans and long-term insurance, said Martin Lau, CEO and president, on the earnings call.
Earnings per share for the quarter was 3.04 yuan, slightly better than FactSet’s forecast of 3 yuan. This is on a non-IFRS basis, similar to the “non-GAAP” (Generally Accepted Accounting Principles) standard used in the US
Tencent hasn’t shared many details about how it plans to implement AI in the wake of OpenAI’s hugely popular ChatGPT chatbot, though the company said it expects to launch the chatbot at an unspecified time.
Lau said on a separate call with the media that he expects AI to be an “important amplifier” for future growth, particularly in AI-generated content, but casts the company’s technology business as still in its early stages.
Tencent is developing a large AI “foundation” model called Hunyuan.
“The foundation model is something we’ve been developing since last year,” Lau said on the call with reporters. He did not comment on ChatGPT or Baidu’s Ernie bot, which was launched last week.
“Doing it right is much more important to us than doing it quickly.”
“Reader. Infuriatingly humble coffee enthusiast. Future teen idol. Tv nerd. Explorer. Organizer. Twitter aficionado. Evil music fanatic.”