Next year will usher in the year of the Mam Teng
"No dream" Tencent once again ushered in a dazzling earnings report.
On the afternoon of May 16, Tencent released its financial report for the first quarter of 2018. According to the financial report, Tencent recorded a revenue of 73.528 billion yuan (approximately US$11.693 billion) in the first quarter of 2018, a year-on-year increase of 48%; and profit attributable to shareholders was 23.29 billion yuan (approximately US$3.812 billion), which was higher than market expectations. 174 billion yuan, an increase of 61%.
Tencent’s net profit was boosted by a one-off gain of RMB 7.6 billion, which was due to its investment value in streaming video, news content and other fields. In addition, the substantial increase in its revenue and net profit was also driven by popular mobile games such as “Jade for survival: Battle Royale”, plus Weixin monthly active users surpassing 1 billion for the first time.
However, Tencent is not without worry. The games for the Jedi Survival series and the "King of Honor" series are still growing, but the revenue generated by the game business has generally slowed. Tencent also faces the pressure of increasing cost expenditures.
One problem with knowing is that "What is Tencent's weakness?" "Tencent has been rethinking now. What is the danger that Tencent is facing now?" Even the job seeker will be asked during the interview. Its financial reports often provide direct answers to this question.
Social and gaming services both slow down
Tencent started as a social player as the game business continued to grow. However, these two businesses have also become annoyed by Tencent.
In the fourth quarter of 2017, revenue from value-added services increased by 37% year-on-year to RMB 39.947 billion. Online game revenue increased by 32% to RMB 24.367 billion.
However, the proportion of game business in Tencent revenue continued to decline. In the fourth quarter of 2016, Tencent’s online game business revenue was 18.869 billion yuan, accounting for 42.11% of the quarterly revenue. In the first three quarters of 2017, the proportion was 46.03%, 42.15% and 41.17%, respectively. In the fourth quarter of 2017, this proportion was only 36.67%.
For the whole year of 2017, the quarterly revenue of Tencent's online game business was RMB 22.811 billion, RMB 23.861 billion, RMB 26.844 billion and RMB 24.367 billion, respectively. This is the first quarterly decline in Tencent’s game business since 2016 compared to the quarter.
In the first quarter of 2018, online game revenue increased by 26% to RMB 28.778 billion. Although there was a double-growth year-on-year and quarter-to-quarter growth, it accounted for 39.05% of the total revenue for the quarter. For the second consecutive quarter, it accounts for less than 40% of the total, and it has to be said that Tencent’s game business has not kept pace with the overall growth of Tencent.
Generally speaking, in the Chinese market, the game market is very active due to New Year holidays and the Spring Festival holiday. Compared to the fourth quarter of 2017, although it also holds the National Day Golden Week, but the Spring Festival holiday has more offline social scenes, to ensure the game activity is improved.
In another aspect, the combined monthly active accounts of WeChat and WeChat reached 1.04 billion, an increase of 10.9% year-on-year. This is also the first quarterly monthly live account of Tencent’s WeChat product exceeding RMB 1 billion. Earlier in the Q4 2017 earnings report, Tencent had mentioned that after the Spring Festival, the combined monthly active accounts of WeChat and WeChat exceeded 1 billion. Relatively speaking, the growth of WeChat users has been very slow. In the third quarter of 2017, the combined monthly accounts of WeChat and WeChat exceeded 980 million. This means that in the past two quarters, this figure has only increased by about 60 million.
The growth of WeChat users slowed down, and QQ users continued to decline. The financial report shows that the number of QQ monthly active accounts in the first quarter was 805 million, a decrease of 6.4% from the same period of last year. The number of QQ space monthly active accounts reached 562 million, a decrease of 11.0% from the same period of last year. This is also one of the reasons for Tencent and Ma’s anxiety. Tencent is losing its young users.
This situation also occurs in short video services. As a project that Tencent had once given up strategically, micro video sharing was once again launched. Tencent invested more than RMB 3 billion in content subsidy and stimulated content creators to gather at Microvision. And Tencent has upgraded the level of microvision internally and asked the microvision team to make a military order.
This action is obviously stimulated by short video products such as chatter and quick hands. With the rapid rise of products such as chatter, the siphon effect of traffic is obvious, and users spend more time fragmenting their time on short videos. For Tencent, businesses such as social networking, games and content are all affected.
However, under the dual support of resources and funds, what kind of effect can be obtained by micro vision has yet to be tested. In addition to vibrato and quick hands, Weibo, with its own star resources and social flow, announced the launch of the "Star Producer Micro-project", trying to cut into the short video field with stars as its selling point. The new round of short video war will soon begin.
Microvision is a microcosm of Tencent’s rising cost expenditures. Tencent's free cash flow in the first quarter was RMB1,300 million, a 46% decrease from the same period last year. In addition, Tencent’s share emolument spending during the quarter was RMB 1.632 billion, which was a 22% increase from the same period last year. Capital expenditures were RMB6.318 billion, an increase of 200% over the same period of last year.
Confronted by huge expenditures that will undermine profitability, Tencent has not faltered, relying on its financial resources to maintain growth in the face of slower online gaming growth, investing in cloud computing, entertainment and physical retail industries to compete against Alibaba Group.
Ma Huateng also wanted to know what is Tencent’s core competencies? Then at a general meeting, he asked 16 senior executives to answer on the spot. In all the feedback, everyone reached an agreement.
One is traffic. Tencent is sitting on WeChat for 1 billion months. If we can make good use of this traffic, it will make Tencent one of the most profitable companies in China.
Another core capability is considered capital. Using capital to release flow resources and create greater value, no other company is more radical and successful than Tencent. Tencent President Liu Chiping revealed at the Tencent Investment Annual Meeting in early 2018 that the added value of these companies has exceeded Tencent's own market value.
Comparison of Tencent and Alibaba's billion-dollar investment in 2017 (from CBN)
According to Bernstein Research's data, in 2017 alone, Tencent invested in more than 80 private companies and listed companies and participated in transactions far beyond the main rival Alibaba Group. Ali participated in about 40 investment deals last year.
In the first quarter 2017 earnings report, Tencent disclosed that on March 31, 2018, the fair value of Tencent’s equity in listed investment companies (excluding subsidiaries) was RMB 212.6 billion, compared with 2108 in the previous quarter. The yuan rose slightly.
In 2017, nearly a quarter of Tencent’s net profit of approximately US$11.1 billion came from investment income of its equity companies, such as China Internet Insurance Company Zhong An Insurance and search provider Sogou. A year ago, Tencent held shares of listed companies worth 7% of its profits. The continuous growth of investment in financial technology has also pushed Tencent forward.
In the article “Tengxun Didn't Dream” written by Pan chaos, it was pointed out that Tencent lacked product innovation in recent years and only relied on investment in financial technology to achieve growth. The last sentence is indeed true, but the previous sentence may not be the case.
Small programs and mini-games boost social business
Cloud and payment become new growth points
The growth of small programs and mini-games has become one of Tenco's few highlights, and it is also Tencent's hope for social business in the future.
In the fourth quarter of 2017, Tencent disclosed the data of the applet. In January 2018, it had launched 580,000 applets and had more than 170 million daily active accounts.
In the first quarterly financial report of 2018, Tencent further disclosed data on small games (small program subcategories) that were launched in December last year. At the end of March, Tencent opened a small game platform to third-party game developers. At present, more than 500 mini-games are online. "The successful launch of the mini-games has benefited the small program ecosystem as a whole. ”
When Ma Huateng, Chairman of Tencent’s Board of Directors, talked about the applet, he also recognized the features of the widely used services such as the WeChat applet, which further strengthened user activity on Tencent's social, gaming, and media platforms.
On the Aladdin platform’s list of small programs for April 2018, all the top three games were games, jumping, happy landlords and pirates. In Top 10, there are seven games, and the remaining three are e-commerce applets. This shows that the small game still has a lot of room for growth.
In addition, the WeChat team also actively promotes the commercialization of small programs.
Since March 2018, WeChat gradually released ads in small programs to help developers realize the realization of advertising in small programs. Immediately, Tencent also launched the "WeChat widget ad placement guidelines." At the "Internet +" conference held in April 2018, the person in charge of the Tencent WeChat team said that the applet will gradually improve the advertising mechanism to help developers realize better.
In addition to small programs and mini-games, Tencent has achieved more than expected results in other businesses (cloud computing, payment, etc.). Benefited from the expansion of payment-related services and cloud service business, other businesses' revenue in the first quarter of 2018 increased by 111% year-on-year to RMB 15.962 billion.
In the fourth quarter of 2017, revenue from other Tencent businesses increased by 121% year-on-year to RMB 14.084 billion. In the fourth quarter of 2016, the revenue of this business segment was 6.585 billion yuan, an increase of 289% from the same period last year. In the first three quarters of 2017, the business revenue was 7.556 billion yuan, 9.654 billion yuan, and 12.044 billion yuan, respectively, an increase of 224%, 177%, and 143% year-on-year.
Although the year-on-year increase was gradually slowing down, it still achieved a year-on-year increase, which is still quite rare for Tencent's cloud business and payment business. The income of this piece of business has become a new growth point of Tencent’s revenue of RMB 100 billion. However, regardless of cloud or payment, it faces challenges from Alibaba (Aliyun, Ant Financial).
As the game and social business's peaking slowed down, Tencent had to find new growth points. On the one hand, Tencent vigorously develops cloud services and payment services, improves infrastructure, and taps smart retail areas. On the other hand, Tencent expands WeChat ecosystem by connecting partners, and small programs (including small games) are the latest attempts.
So, Tencent is not without dreams. "Going forward" and "going to the money" are two major goals. On the way forward, Tencent is not without crisis. However, for Tencent, "dangerous" and "lucky" coexistence may be the best situation.