In the second quarter of this year, Tencent continued to move forward steadily and the quality of growth continued to improve.
On August 16th, Tencent Holdings (00700.HK) disclosed the second quarterly report, showing that Tencent achieved revenue of 149.208 billion yuan, up 11% year-on-year, and non-IFRS was 37.548 billion yuan, up 33% year-on-year.
Since the beginning of this year, Tencent’s revenue has maintained growth for two consecutive quarters; Since the second half of last year, Tencent’s net profit growth rate has led the revenue growth rate for four consecutive quarters, and its high-quality development strategy has achieved results.
Advertisements, video numbers and overseas games have become the highlights of this season. Among them, advertising revenue increased by 34% year-on-year to 25 billion yuan with the help of the platform’s underlying capabilities and WeChat business ecology; The real economy maintained steady growth, with revenue increasing by 15% year-on-year to 48.64 billion yuan; Overseas games continued to make incremental contributions, and revenue this quarter increased by 19% year-on-year to 12.7 billion yuan, accounting for nearly 30% of the total game revenue.
Behind the rise in quantity and quality, continuous cost reduction and efficiency improvement have promoted Tencent to focus more on its core business and continuously optimize its cost structure; At the same time, the release of the commercialization potential of WeChat and the acceleration of business going to sea have also brought new growth points. In terms of scientific and technological innovation, Tencent invested a total of 31.191 billion yuan in R&D in the first half of this year, and its large-scale model solutions have landed in more than 10 industries, laying the foundation for future growth.
Ma Huateng, Chairman and CEO of Tencent, said that the company maintained steady revenue growth, tilted towards high-quality revenue sources with higher profit margins, and combined with strict cost discipline, the profit growth rate exceeded the revenue growth rate. He also pointed out that the company’s advertising business has achieved remarkable rapid growth, thanks to the application of machine learning ability on the advertising platform and the commercialization of video numbers. In the future, Tencent will continue to promote innovation, including polishing its own proprietary basic model through generative artificial intelligence.
The strong recovery of advertising revenue increased by 34% year-on-year, and the video number contributed more than 3 billion yuan in revenue.
Benefiting from the recovery of the external environment and the recovery of market demand, Tencent’s core main businesses such as advertising and digital economy achieved steady growth in the second quarter.
Thanks to the upgrade of machine learning system and the accelerated commercialization of video numbers, the revenue of advertising in this quarter increased by 34% year-on-year to 25 billion yuan, which exceeded the overall industry level, and the market share was further improved in several advertising industries.
More and more merchants and creators focus on the video number, and through the collaboration of small programs, corporate WeChat, payment and other toolkits, they realize income generation in the WeChat ecosystem, which feeds back the growth of Tencent advertising. The financial report shows that thanks to the growth of video number, applet and friends circle users’ usage time, the total user usage time of video number almost doubled year-on-year, and the advertising revenue of video number exceeded 3 billion yuan.
In addition, the number of monthly active accounts of applets exceeds 1.1 billion, among which the small game, as the leading leisure game platform in China, has made remarkable contributions, and generated high gross profit margin and distribution and advertising revenue with platform economic effects.
In the second quarter, Tencent’s financial technology and corporate service revenue increased by 15% year-on-year to 48.64 billion yuan, which was the largest contribution to the performance revenue this quarter. At the same time, the contribution of this sector to Tencent’s revenue has continued to rise, accounting for more than 30% of revenue for nine consecutive quarters, which has promoted a more stable income structure.
The financial report shows that the revenue of financial technology business increased by double digits year-on-year, and the revenue of corporate services increased by low double digits year-on-year. The growth of cloud services and live video technology services contributed to the increase.
In terms of financial technology, Tencent has completed the self-examination and corresponding rectification of Tenpay, and improved the compliance management ability of payment business. The company looks forward to promoting business development and innovation under the framework of supportive supervision.
In terms of enterprise services, Tencent relies on core technologies to expand a wide range of application scenarios. Through multi-dimensional efforts such as self-research technology, product ecology and operational support, Tencent’s industrial ecological development has continued to grow. At present, there are more than 10,000 partners and more than 400 joint solutions have been launched in more than 30 industries.
Overseas games account for nearly 30% of the total game revenue, strengthening the "second growth curve"
Digging deep into the other side of the incremental space in the traditional core business, Tencent further focused its attention on overseas, and the contribution of international game revenue continued to increase.
In the second quarter of this year, Tencent’s overseas games maintained strong growth. Thanks to the excellent performance of games such as VALORANT, goddess of victory: nikki and Triple Match 3D, tencent games’s international market revenue reached 12.7 billion yuan this season, up 19% year-on-year.
At the same time, Tencent’s new online self-developed products are rapidly opening up the market. In July this year, the international version of Tencent’s self-developed game "Dark Zone Breakthrough" landed in overseas markets, which was favored by overseas users. In less than 8 hours, it ranked first in the world for free, and maintained a leading position in many countries and regions.
Compared with tencent games’s total revenue of 44.5 billion yuan in the second quarter, overseas game revenue accounted for 28.5% in this quarter, which was higher than that in the previous quarter, consolidating the role of the game sector as the "second growth curve".
In Q3 of 2019, Tencent mentioned in its financial report for the first time that the game contribution revenue from the international market exceeded 10%. Since then, Tencent has continuously revealed the relevant progress of international games in its financial report. From Q1 to Q4 in 2022, the overall contribution of overseas games to the game accounted for 24.3%, 25.2%, 27.3% and 33.3%, and the proportion continued to rise.
66,000 patents highlight the background of science and technology, and the industry model drives industrial upgrading.
Behind Tencent’s continuous efficiency improvement and international competitiveness, its scientific and technological strength is a solid base. The financial report shows that Tencent’s R&D expenditure in the second quarter was 16.01 billion yuan, and the accumulated investment since 2018 has reached 236.8 billion yuan.
Sustained high R&D investment has promoted the transformation of achievements and driven the patent innovation curve to continue to rise. As of June, Tencent’s total number of patent applications in major countries and regions around the world exceeded 66,000, and the number of patents granted exceeded 33,000, mainly in frontier fields such as artificial intelligence, cloud technology, big travel and instant messaging.
By the end of 2022, Tencent’s R&D personnel accounted for 74%. Relying on independent research and development, Tencent has continuously improved its underlying capabilities in terms of algorithms and computing power. In June this year, Tencent launched the Model as a Service (MaaS) solution, which is based on Tencent Cloud’s self-developed high-performance computing cluster, AI native vector database and high-performance network to help enterprises develop customized large models with higher efficiency and lower cost.
Among them, Tencent Cloud’s next-generation HCC high-performance computing cluster adopts the latest generation of Tencent Cloud Star Sea self-developed server, which improves the overall computing performance by three times. The AI native vector database supports the industry-leading 1 billion-level vector retrieval scale, which can improve the efficiency of developers accessing AI by 10 times. Tencent Cloud’s high-performance network star pulse is equipped with a new generation of HCC high-performance computing cluster, and the training time of trillion-parameter large model has been accelerated to 4 days.
In the internal product matrix, Tencent Cloud’s industry model capability is first applied in many SaaS products such as Tencent Enterprise Point, Tencent Conference and Tencent Cloud AI Code Assistant. In terms of external industry ecology, Tencent’s industry model has been applied to more than 10 industries, including finance, cultural tourism, media and government affairs, providing over 50 industry solutions.
In the financial field, Tencent helped CICC to build its own model, reducing the cost of technology development and operation, and the daily call peak of multi-scenario data analysis reached 100 million times. In the field of media, Tencent cooperated with CCTV to create a media model scheme, which promoted the intelligent process of media content production and dissemination.
