The monthly active users (MAU) of WeChat increased by 8.2% YoY or 3.2% QoQ to 1.2 billion in the first quarter of 2020, according to Tencent’s financial results. Smart device MAU of QQ decreased by 1% to 693.5 million.
WeChat and QQ enabled Tencent’s users to keep connected with their families and friends during the stay-at-home period, and their respective total daily messages and time spent increased at double-digit percentages on a year-on-year basis.
Tencent’s communication platforms introduced new functionalities to fulfill evolving user needs in different verticals. For eLearning, teachers can now custom QQ group toolbar with relevant Mini Programs, such as online examination and homework collection tools, to better manage online classes.
QQ School-plus-Home groups have become a primary eLearning platform serving tens of millions of teachers, students and parents every day.
As users are structurally shifting their behavior from offline to online, WeChat deepened its penetration in daily services via Mini Programs, particularly for grocery shopping and municipal services.
This contributed to the rapid growth of Mini Programs, DAU of which exceeded 400 million. Leveraging Tencent’s extensive reach to consumers and merchants, Tencent assisted local governments and merchants in distributing eVouchers to expedite the recovery in consumption, especially for retailers and restaurants.
Social network revenues increased by 23% YoY to RMB25,131 million. The increase was primarily driven by greater contributions from in-game virtual item sales as well as digital content services including music streaming and video streaming subscriptions.
Online game revenues grew by 31% YoY to RMB37,298 million. The increase primarily reflected revenue contributions from domestic smartphone games such as Peacekeeper Elite and Honour of Kings, as well as increased contributions from Tencent’s overseas titles including PUBG Mobile and Clash of Clans, partly offset by lower revenues from PC client games such as DnF.
Total smartphone games revenues (including smartphone games revenues attributable to our social networks business) were RMB34,756 million and PC client games revenues were RMB11,795 million for the first quarter of 2020.
Tencent’s studios released attractive content and Tencent’s publishing teams ran compelling in-game events and activities, resulting in higher DAU.
For example, Tencent’s upgraded game engine for Honor of Kings enhanced audio and visual quality for in-game items, and a new location-based teamplay system encouraged more user interactions.
Peacekeeper Elite ran a successful collaboration with Rocket Girls 101 (an idol girl group managed by Tencent, which emerged from Tencent’s popular variety show), driving user engagement to a new high and demonstrating cross-IP synergy within Tencent.
For PC games, activity in China declined due to temporary closures of internet cafés and the soft performance of DnF.
Internationally, PUBG Mobile celebrated its second anniversary and enhanced localization capabilities to meet diverse user tastes in different regions. Brawl Stars’ optimized player-matching algorithm enhanced its user experience.
Riot Games released a Teamfight Tactics mobile app, contributing to higher user retention and extended playing time for the League of Legends franchise. It also launched a mobile card game, Legends of Runeterra, and started beta-testing Valorant in April this year.
Tencent expects game playing time and in-game consumption activity to largely normalize industry-wide as people return to work, but also believe that games have structurally expanded their long-term audiences and appeal.
Tencent expects in-game consumption activities to largely normalize as people return to work, and it sees some headwinds for the online advertising industry.
Tencent’s fee-based VAS subscriptions increased 19% year-on-year to 197 million, reflecting robust growth in video and music subscriptions. This was driven by the popular self-commissioned video content, an expanding paid music library, and more user time spent online during the stay-at-home period.
Total video subscriptions rose 26% year-on-year to 112 million and music subscriptions grew 50% year-on-year to 43 million. Tencent Video DAU and traffic grew as users were attracted to Tencent’s platform by the release of popular self-commissioned Chinese anime and drama series, such as The Land of Warriors Season 3 and Sansheng Sanshi Pillow.
Tencent strengthened its short-form video content, driving user traffic and consumption of short-form video across Weishi, news feed platforms and Mini Programs.
With the appointment of a new management team at China Literature, Tencent intend to deepen cooperation with Tencent’s subsidiary company in adapting its literature IP into various media formats such as TV series, anime, and games, leveraging its distribution capability to broaden its user reach, as well as exploring product innovation and new technologies to strengthen its content ecosystem.
Tencent’s online advertising revenue grew year-on-year, reflecting increased consumer time spent on Tencent’s key apps during the stay-at-home period and the attractive ROIs Tencent delivered to advertisers.
By industry, games, Internet services, and online education advertising spending on Tencent’s platforms increased as consumption of these services grew during the stay-at-home period while FMCG, automobile and travel advertising spending declined.
Social and other advertising revenue increased year-on-year and quarter-on-quarter, driven by increases in advertisement impressions, particularly for WeChat Moments.
Tencent’s mobile advertising network revenue expanded on more traffic and higher eCPMs as video advertisements represented over one-third of advertisement impressions.
As for media advertising, sponsorship advertising revenue declined year-on-year and quarter-on-quarter due to budget cuts, delays in variety shows and suspension of NBA games.
In-feed advertising revenue grew year-on-year and quarter-on-quarter across video and news properties, driven by the popularity of top-tier drama series and demand for reliable news and information during the stay-at-home period.
Looking forward, Tencent sees several likely industry-wide headwinds, including consumer time spent online normalizing which will lead to lower advertisement impression growth, online services advertisers adjusting their customer acquisition budgets to reflect revised lifetime value assumptions, and multinational brands sharply reducing their global marketing budgets as they faced the pandemic in their home markets.
Revenues from Tencent’s Online Advertising increased by 32% YoY to RMB17,713 million. Social and other advertising revenues grew by 47% YoY to RMB14,592 million. The increase mainly reflected higher advertising revenues derived from increased inventories and impressions from its mobile advertising network and WeChat Moments.
Media advertising revenues decreased by 10% YoY to RMB3,121 million. The decrease was primarily due to lower revenues from our video and news platforms as a result of weak macro-economic conditions and suspension of sports events.
Revenue of FinTech services decreased sequentially as payment activities, especially offline transactions, and cash withdrawals reduced during the Chinese New Year and stay-at-home period.
Despite lower revenue, Tencent’s FinTech services margins were stable as Tencent’s higher-margin revenue streams such as wealth management and lending continued to grow, and as Tencent controlled marketing and subsidy expenses.
For the last week of April, Tencent’s average daily commercial transactions value recovered to late 2019 levels. Tencent’s wealth management business expanded at a stable rate in the first quarter, achieving year-on-year and quarter-on-quarter growth in aggregated customer assets.
WeiLiDai’s loan book remained healthy, reflecting WeBank’s prudent risk management.
Cloud and Other Business Services
Project deployment and new accounts acquisition for Tencent’s cloud business were delayed due to the pandemic, causing a sequential decline in revenue.
However, Tencent Meeting achieved breakout success and became a leading video conference app in China. Tencent strengthened its security measures and introduced functions to facilitate discussion and conference management.
In March 2020, Tencent launched an international version, VooV Meeting.
WeChat Work enhanced its industry solutions and deepened integration with WeChat, helping Tencent to sign up more key accounts, especially in the retail, education, and public sectors, and driving its DAU to grow significantly.
Tencent invested heavily in promoting these remote working products and in maintaining robust cloud infrastructure, to ensure secure and reliable services for Tencent’s users.
Looking forward, Tencent expects the cloud industry to remain challenging in the short term. However, Tencent will continue increasing Tencent’s investment in these areas and expect to see accelerated cloud services and enterprise software adoption from offline industries and public sectors over the longer term.
Tencent Financial Highlights in Q1 2020
Total revenues were RMB108,065 million (USD15,252 million), an increase of 26% over the first quarter of 2019.
On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:
- Operating profit was RMB35,575 million (USD5,021 million), an increase of 25% YoY. Operating margin remained stable at 33%.
- Profit for the quarter was RMB27,984 million (USD3,950 million), an increase of 29% YoY. Net margin increased to 26% from 25% last year.
- Profit attributable to equity holders for the quarter was RMB27,079 million (USD3,822 million), an increase of 29% YoY.
- Basic earnings per share were RMB2.858. Diluted earnings per share were RMB2.817.
On an IFRS basis:
- Operating profit was RMB37,260 million (USD5,259 million), an increase of 1% YoY. Operating margin decreased to 34% from 43% last year.
- Profit for the period was RMB29,403 million (USD4,150 million), an increase of 6% YoY. Net margin decreased to 27% from 33% last year.
- Profit attributable to equity holders of the Company for the quarter was RMB28,896 million (USD4,078 million), an increase of 6% YoY.
- Basic earnings per share were RMB3.049. Diluted earnings per share were RMB2.999.
Revenues from VAS increased by 27% YoY to RMB62,429 million. Revenues from FinTech and Business Services increased by 22% YoY to RMB26,475 million. The increase was primarily due to revenue growth from commercial payments and wealth management platform, as well as greater revenue contributions from cloud services capturing opportunities in verticals including video, education and retail sectors.