TENCENT Holdings’ revenue growth accelerated after the blockbuster summer release of Dungeon & Fighter Mobile helped lift China’s most valuable company out of a gaming trough.
China’s most valuable company boosted sales 8 per cent in the April-to-June period, when its core gaming arm bounced back from two successive quarters of decline. Net income leapt a faster-than-projected 82 per cent. But the fintech and cloud services division – the biggest business – grew a disappointing 4 per cent, reflecting both consumer and corporate belt-tightening in a volatile Chinese economy.
Shares in Naspers, a major backer, rose as much as 2.7 per cent. Investors had been counting on a solid performance from the world’s biggest games publisher, which scored the biggest hit of the year with May release of the Nexon-produced DnF Mobile in China. This month, Tencent is preparing also to introduce Black Myth: Wukong, continuing a longstanding quest to refresh an aging games pipeline.
But Tencent faces unusually strong competition in China’s US$40 billion-plus gaming arena this summer. NetEase and Genshin Impact studio Mihoyo both unveiled games that’ve gathered strong initial momentum against their deeper-pocketed rival.
“Domestic games resuming growth is highly positive and given the success of recent new title launches, growth could reach double digits in the third quarter,” said Vey-Sern Ling, UBP senior equity advisor. “Games continue to be Tencent’s most important profit driver and growth acceleration bodes well for the share price.”
Tencent is the first major Chinese tech corporation to release earnings for the June quarter, at a time the country is grappling with economic challenges from a property crisis to high youth unemployment. That was reflected in a slowdown in payments through its widely used WeChat app. Alibaba Group Holding and JD.com report on Aug 15, and their businesses are also considered susceptible to fluctuations in consumer sentiment.
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Tencent’s gross margins mainly improved across the board, thanks to the super-app WeChat which channeled a billion-plus users to services from mini-games to advertising and video shopping feeds.
Online advertising surged 19 per cent, helping underpin margins. Net income surged to 47.6 billion yuan, compared with the estimated 39.9 billion yuan. Revenue jumped 8 per cent to 161.1 billion yuan (S$29.7 billion) for the April-June period, versus the projected estimate of 161.4 billion yuan.
Executives will brief analysts later on their results later on Wednesday (Aug 14). Investors are likely to ask how its artificial intelligence investments will contribute to future growth.
So far, AI has helped improve ad targeting, but the firm’s proprietary large language model and ChatGPT-style tool have lagged competitors like TikTok parent ByteDance and Alibaba in user uptake. Still, both Alibaba and Tencent have invested in the majority of China’s up-and-coming model builders, an elite group of six startups that have collectively attracted billions of US dollars of venture funding.
Executives may also face questions about their plans for shareholder returns.
Tencent has spent almost US$8 billion this year to repurchase its stock, according to a Bloomberg News calculation, outpacing the buyback activity of other Hong Kong-listed firms as the local market sagged. Shares of the WeChat operator surged roughly 27 per cent this year, versus a 10 per cent drop in the Hang Seng Tech Index.
“Tencent’s revenue streams are well diversified, with the firm positioned as a leader in many of its end markets, including video games,” Bloomberg Intelligence analysts Robert Lea and Jasmine Lyu wrote in a note before the results. “Unlike its ecommerce peers, Tencent’s divisions benefit from relatively high technical barriers to entry, making them less exposed to risk from low-cost disruptors.” BLOOMBERG
