Chinese tech giant Tencent announced quarterly results on Wednesday.
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BEIJING – Chinese technology giant tencent reported better-than-expected quarterly revenue on Wednesday, aided by growth in advertising within its growing “video accounts” business.
Total revenue for the quarter ended December 31 was 144.95 billion yuan ($21.07 billion), higher than the 143.89 billion yuan estimated by FactSet.
Tencent’s online advertising revenue rose 15% overall to 24.7 billion yuan, surpassing FactSet’s estimate of 22.18 billion yuan — growing for the first time since the second quarter of 2021. The company said most of its ad spend quickly came from e-commerce companies. -moving consumer goods and games.
Video accounts are part of the WeChat messaging and social media app and are a way for individuals and businesses to share short videos and live streams on the platform. Average monthly users of WeChat in China and abroad increased 3.5% from a year ago with 1.31 billion accounts in the fourth quarter.
Ad spend
In-feed ads for video accounts generated more than 1 billion yuan in revenue in the fourth quarter, Tencent said. It said user time spent on video accounts was more than 1.2 times that spent on WeChat Moments, similar to Facebook’s News Feed.
“This ad unit enabled them to unlock e-commerce revenue, which has done quite well,” James Lee, internet analyst for the US and China at Mizuho Securities, said on CNBC’s “Squawk Box Asia.” He has a neutral rating on Tencent and a price target of HK$400.
Shares of Tencent in Hong Kong traded 5% higher at HK$366.40 on Thursday.
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GMV measures the total sales value over a period of time.
That level of GMV makes Tencent “one of the largest e-commerce platforms” that the company is starting to monetize, Lee said. “I think that has really good potential for the future.”
Tencent has not disclosed exact GMV figures. It was unclear how the numbers compare to alibabawhich generated 540.3 billion yuan in GMV during its annual shopping festival in November 2021, the latest figures available.
Advertising spend is often an indicator of economic sentiment.
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Companies selling cheaper goods are “already seeing a broad-based recovery,” Tencent Chief Strategy Officer James Mitchell said during an earnings call. “For companies selling more expensive items, it varies by category.”
He said those merchants and advertisers generally expect consumption to pick up later this year. Many video account viewers don’t use existing short video apps like Kuaishou or Douyin from ByteDance, Mitchell said.
Advertisements, however, still account for less than a fifth of Tencent’s total revenue — which barely grew in the fourth quarter and fell for all of 2022 as Covid controls put a brake on economic growth.
Income sources
The largest revenue segment, including the giant gaming business, fell 2% to 70.4 billion yuan in the fourth quarter, in line with FactSet estimates for 70.2 billion yuan. In April 2022, Beijing started to regularly approve new game titles again after a hiatus of more than six months.
Tencent’s second-largest source of revenue, financial technology and business services, fell 1% to 47.2 billion yuan, below FactSet’s estimates of 49.49 billion yuan.
“FinTech Services revenue growth was slower than in the previous quarter due to COVID-19 outbreaks temporarily dampening payment activity,” Tencent said in a press release. “Business Services revenue was down year-over-year as we wound down loss-making activities.”
For the first three months of 2023, daily average commercial payment volume recovered by double digits from a year ago when consumption recovered, the company said.
As regulations “normalize” in China, the company sees opportunities to develop financial products such as longer-term asset management, loans and insurance, Martin Lau, executive director and president, said on the earnings call.
Earnings per share for the quarter were 3.04 yuan, slightly better than FactSet’s expectations of 3 yuan. This is based on non-International Financial Reporting Standards, similar to the “non-GAAP” standard (Generally Accepted Accounting Principles) used in the US
Opportunities in AI
Tencent is developing a large artificial intelligence model called Hunyuan.
“The base model is something we’ve been developing since last year,” Lau said while talking to reporters. He did not comment on ChatGPT or Baidu‘s Ernie bot, which launched last week.
“It’s much more important for us to do it right than to do it quickly.”
