Tencent’s total revenues were RMB88,821 million (USD12,920 million) in Q2 2019, an increase of 21% over the second quarter of 2018 according to its financial results. Operating profit was RMB27,521 million (USD4,003 million), an increase of 26% YoY. And, the operating margin increased to 31% from 30% last year.
Revenues from VAS increased by 14% YoY to RMB48,080 million for Q2 2019. Online games revenues grew by 8% to RMB27,307 million. The increase was primarily due to revenue growth from smartphone games, including existing titles such as Honour of Kings, PUBG MOBILE and Red Alert OL, and recently launched titles such as Perfect World Mobile, offset by a decline in revenues from PC client games.
Social networks revenues grew by 23% to RMB20,773 million. The increase mainly reflected higher revenues from digital content services such as live broadcast services and video streaming subscriptions.
Revenues from FinTech and Business Services increased by 37% to RMB22,888 million for Q2 2019, driven by revenue growth from commercial payment and cloud services, partly offset by the absence of interest income after transferring custodian cash balances to the People’s Bank of China.
Revenues from Online Advertising increased by 16% to RMB16,409 million. Social and other advertising revenues increased by 28% to RMB12,009 million, mainly benefiting from greater advertising revenue contributions from WeChat and QQ. Media advertising revenues decreased by 7% to RMB4,400 million, primarily reflecting lower contributions from Tencent’s media platforms due to the absence of the FIFA World Cup tournament.
Tencent’s profit for Q2 2019 was RMB24,684 million (USD3,591 million), an increase of 33% YoY. Net margin increased to 28% from 25% last year. Profit attributable to equity holders for the quarter was RMB24,136 million (USD3,511 million), an increase of 35% YoY. Basic earnings per share were RMB2.550. Diluted earnings per share were RMB2.520.
In recent months, Tencent accelerated their rate of innovation in games, releasing new titles in several different genres, introducing new play modes, and extending popular season passes. Tencent has widened merchant adoption for its mobile payment services, contributing to rapid growth in average transaction and total payment volume. It has extended and deepened its exclusive relationship with the NBA, the most-watched professional sports league in China, reinforcing its position as a leading digital entertainment platform.
Total online games revenues increased 8% year-on-year to RMB27.3 billion. Smartphone games revenues (including smartphone games revenues attributable to its social networks business) amounted to RMB22.2 billion, up 26% year-on-year due to the popularity of existing key titles and recent releases.
Sequentially, smartphone games revenues were up 5% quarter-on-quarter as Tencent launched more games following monetization license approval resumption, offsetting weak seasonality.
During the quarter, Tencent released 10 games including an in-house AR game, Catchya, and in-house RPGs, Fairy Tail and Raziel, compared with only one game in the first quarter. Honor of Kings revenue increased year-on-year. Perfect World Mobile, a licensed RPG that Tencent launched in March, contributed substantially to its second quarter revenue.
Tencent’s in-house tactical tournament game, Peacekeeper Elite, has exceeded 50 million DAU since its launch in May and begun monetization with a successful season pass offering, although reported revenue was limited in the second quarter due to the deferral impact.
Tencent is in the early stages of implementing season passes for several of its key titles, contributing to paying propensity within those games. Season pass spending is largely complementary to the existing item sales model and also enhances player activity.
In July, Tencent released three smartphone games in different game genres, including racing game KartRider Rush, strategy game Game of Thrones: Winter is Coming, and RPG Dragon Raja. All three have achieved top 10 positions in the iOS Grossing Chart for games in China.
Internationally, Tencent expanded its user base via its hit title PUBG MOBILE (which has exceeded 50 million DAU) and new games such as Speed Drifter (the international version of QQ Speed) and Chess Rush.
Its PC client games revenues were RMB11.7 billion, down 9% year-on-year, despite increased cash receipts, and down 15% quarter-on-quarter due to weak seasonality. League of Legends cash receipts increased yearon-year driven by popular eSports-themed skins.
In June, League of Legends introduced a new play mode, Teamfight Tactics, contributing to growth in its DAU and user time spent. Teamfight Tactics is the global leader in the emerging auto-chess category. DnF has reduced monetization as Tencent focuses on enhancing its user experience.
Tencent Digital Content
Its fee-based VAS subscriptions increased 10% year-on-year to 168.9 million, mainly attributable to video and music subscriptions. Tencent Video subscription counts were 96.9 million, up 30% year-on-year, benefitting from joint membership promotions with its strategic partners and its popular self-commissioned Chinese anime series, The Land of Warriors Season 2.
However, the growth in its video subscriber base slowed, due to the delay in the scheduling of top-tier drama series content. During the 2018-2019 season of the NBA, 490 million Internet users in China watched one or more games on its platforms, nearly tripling the number of Internet users who watched the NBA on Tencent platforms during the 2014-2015 season.
Its partnership did not only increase fans engagement, brand power and monetization capability for the NBA but also reinforced Tencent Sports as the top Internet destination for sports fans in China, contributing to its advertising and subscription revenues. Recently, it announced a five-year partnership extension with the NBA. Tencent will cooperate with the NBA in developing basketball-related smartphone games and eSports events.
Check out Tencent’s social media user growth (WeChat, QQ) here.
Tencent’s Performance Highlights for the first half of 2019
Total revenues were RMB174,286 million (USD25,352 million1 ), an increase of 18% over the first half of 2018 (“YoY”). Operating profit was RMB64,263 million (USD9,348 million), an increase of 22% YoY. Operating margin increased to 37% from 36% last year.
Profit for the period was RMB52,540 million (USD7,643 million), an increase of 23% YoY. Net margin increased to 30% from 29% last year. Profit attributable to equity holders for the period was RMB51,346 million (USD7,469 million), an increase of 25% YoY.
Basic earnings per share were RMB5.427. Diluted earnings per share were RMB5.362.
On a non-GAAP basis, which excludes certain non-cash items and certain impact of M&A transactions:
- Operating profit was RMB55,751 million (USD8,110 million), an increase of 17% YoY.
- Operating margin remained stable YoY at 32%.
- Profit for the period was RMB45,864 million (USD6,671 million), an increase of 16% YoY. Net margin slightly decreased to 26% from 27% last year.
- Profit attributable to equity holders of the Company for the period was RMB44,455 million (USD6,466 million), an increase of 17% YoY.
- Basic earnings per share were RMB4.699. Diluted earnings per share were RMB4.643
Share-based compensation was RMB2,453 million, up 36% YoY. Page 3 of 13 EBITDA was RMB32,649 million, up 24% YoY. Adjusted EBITDA was RMB35,102 million, up 25% YoY. Capital expenditure was RMB4,362million, down 38% YoY. Free cash flow was RMB20,698 million, up 27% YoY.
As of June 30, 2019, the net debt position totaled RMB15,766 million. The fair value of Tencent’s stakes in listed investee companies (excluding subsidiaries) totaled RMB329,012 million as at 30 June 2019.