WeChat MAU grew 6.5% YoY to 1,206.1 million in Q2 2020 while another social platform of Tencent QQ saw a decrease of 8.4% YoY to 647.6 million according to Tencent’s financial results.
In Q2 2020, Tencent added live streaming function to school-plus-home groups facilitated online education within WeChat. MAUs and daily messages sent both increased year-on-year. For content, it upgraded the video content publishing functionalities in Official Accounts, enhanced content discovery with strengthened recommendation algorithm, and launched content aggregation tools.
Tencent assisted traditional retailers to migrate online and support their business resumption via Mini Programs. Transactions value generated via Mini Programs increased sequentially as economic activities recovered.
Tencent launched a free and easy-to-use toolkit, Mini Stores, to help long-tail merchants build and operate digital storefronts, empowering them with various functions such as order management, after-sales services, and live streaming.
In QQ, Tencent enriched features to enable users to better interact with their friends and families while they are physically apart. Users can initiate online parties and play AI-empowered social games together with their friends in video chats.
To engage the expanding fan base for Anime, Comics, Games, and Novels (“ACGN”) content, it offered customizable comic stickers within QQ chats, and enriched content for ACGN-related Mini Programs, which gained popularity among young users.
Tencent’s fee-based VAS subscriptions increased 20% year-on-year to 203 million, primarily due to growth in video and music content subscriptions. Tencent Video subscriptions increased 18% year-on-year to 114 million, driven by self-commissioned Chinese anime and drama series.
Social networks revenues increased by 29% to RMB26,714 million. The increase was mainly due to revenue contributions from digital content services including the live broadcast services of HUYA Inc. (which Tencent consolidated as a subsidiary from April 2020), and music subscription growth, as well as revenue growth from in-game virtual item sales.
Online Gaming
In China, user time spent on Tencent’s smartphone games increased year-on-year but decreased quarter-on-quarter due to seasonality and back-to-office behavior.
Online games grew by 40% to RMB38,288 million and account for 34% of Tencent’s total revenues in Q2 2020.
The increase was primarily driven by higher revenues from smartphone games in both domestic and overseas markets, including titles such as Peacekeeper Elite and Honour of Kings, partly offset by the decrease in revenues from PC client games such as DnF and CrossFire.
Total smartphone games revenues (including smartphone games revenues attributable to our social networks business) were RMB35,988 million and PC client games revenues were RMB10,912 million for the second quarter of 2020.
Honor of Kings deepened its user engagement with the release of more top-tier skins during its annual Give Me Five festival.
Peacekeeper Elite celebrated its first anniversary with new content and game modes to enhance the competitive game experience, and Tencent partnered with Tesla to introduce in-game Tesla-branded car skins in July, which proved highly popular.
In Q2, Tencent launched a strategy game, Chess Rush; an action game based on a popular anime IP, The Outcast; and Supercell’s Brawl Stars. Brawl Stars ranked first in the iOS China Download Chart in June this year, extending its global leadership in the fast-paced 3v3 MOBA genre.
Internationally, Tencent MAU increased significantly year-on-year and quarter-on-quarter due to new game launches and more user time spent during the stay-at-home period. Tencent released an immersive team-based action game for PC, Valorant; a card game supporting cross-platform play on PC and smartphones, Legends of Runeterra; and a licensed mobile RPG, CODE:D Blood.
Valorant was the most-watched game globally on Twitch during the second quarter, reflecting the game’s instant appeal to immersive action game players.
Online Advertising
Continued strength in social and others advertising contributed to the year-on-year revenue growth for Tencent’s online advertising business, up 13% YoY and accounting for 16% of total revenues.
Sequentially, Tencent’s online advertising revenue grew at a slower-than-seasonal rate as the games and Internet services sectors, which had ramped up advertising aggressively during the first quarter of 2020 due to work-from-home behavior, reduced their spending to more normal levels.
However, Tencent’s advertiser industry breadth diversified in Q2 2020 as categories such as e-commerce and education spent heavily for the 618 promotional campaigns and summer courses, while categories such as automobile and consumer electronics brands increased their spending as consumption recovered.
Tencent launched an integrated advertising platform in July, where advertisers can more efficiently place advertisements across all of Tencent’s inventories, including Tencent’s mobile advertising network.
This new platform will also enhance bidding efficiency and provide smarter targeting for advertisers. For social and others advertising, WeChat properties, particularly WeChat Moments, saw rapid advertising impressions growth, while Tencent’s mobile advertising network experienced higher eCPMs as video advertisements’ revenue contribution increased from a single digit percentage in Q2 2019 to over 40% in the second quarter this year.
As for media advertising, revenue declined sharply year-on-year due to weak demand from brand advertisers and the delayed production and release of certain variety shows and drama series, some of which Tencent expect to release in the second half of 2020.
FinTech
Tencent’s commercial payment and wealth management businesses grew their users and business scale, driving FinTech revenue up 30.5% YoY to 29,862 million yuan and representing 26% of total revenues.
Offline merchants, especially SMEs increasingly adopted Tencent’s payment services and business management tools, as they sought to digitally upgrade their businesses to access customers and settle transactions via mobile phones.
During the quarter, merchant demand for Tencent’s payment solutions stepped up, especially from categories such as retail and restaurants. As a result, the number of average daily transactions and value per transaction for Tencent’s commercial payments both grew year-on-year.
For Tencent’s wealth management business, the aggregated customer assets and the number of active customers increased rapidly year-on-year as more customers appreciate the convenience of managing their cash through Tencent’s secure and carefully-curated platform.
Financial Results
Total revenues were RMB114,883 million (USD16,228 million), an increase of 29% over the second quarter of 2019 (“YoY”).
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 RMB37,629 million (USD5,315 million), an increase of 38% YoY.
- Operating margin increased to 33% from 31% last year.
- Profit for the period was RMB31,220 million (USD4,410 million), an increase of 29% YoY. Net margin remained stable at 27%.
- Profit attributable to equity holders of the Company for the quarter was RMB30,153 million (USD4,259 million), an increase of 28% YoY
On an IFRS basis:
- Operating profit was RMB39,311 million (USD5,553 million), an increase of 43% YoY.
- Operating margin increased to 34% from 31% last year.
- Profit for the period was RMB32,454 million (USD4,584 million), an increase of 31% YoY.
- Net margin remained stable at 28%.
- Profit attributable to equity holders of the Company for the quarter was RMB33,107 million (USD4,676 million), an increase of 37% YoY.
- Basic earnings per share were RMB3.491. Diluted earnings per share were RMB3.437
