Tencent’s Q1 revenue was flat year-on-year, and net profit fell for three consecutive quarters
Tencent’s Q1 revenue was flat year-on-year, and net profit fell for three consecutive quarters. Tencent accelerated the integration of digital and real entities and increased investment in R&D. , Tencent’s R&D expenditure in the first quarter reached 15.38 billion yuan, a year-on-year increase of 36%. Tencent’s Q1 revenue was flat year-on-year, and its net profit declined for three consecutive quarters. Tencent’s Q1 revenue was flat year-on-year, and its net profit fell for three consecutive quarters1
In the first quarter, the performance of many companies was affected by the epidemic, and even Tencent’s net profit growth rate was slowed down a lot.
On May 18, Tencent released its first quarter performance report for 2022, achieving revenue of 135.471 billion yuan and net profit (Non-IFRS) of 25.545 billion yuan, a year-on-year decrease of 23%. The financial report shows that Tencent’s financial technology and enterprise services segment achieved revenue of 42.768 billion yuan in the first quarter, a year-on-year increase of 10%, accounting for one-third of revenue. The digital economy segment accounted for an increasing share. While net profit declined, Tencent R&D is also growing rapidly.
The combined monthly active accounts of WeChat and WeChat were 1.29 billion, a year-on-year increase of 3.8%.
Digital Economy
The financial technology and enterprise service business achieved revenue of 42.8 billion yuan, a year-on-year increase of 10%. To B business became the revenue pillar for the second consecutive quarter, "930 Reform" In three years, Tencent’s To B revenue has doubled, and its proportion has increased from 26 to 32.
In 2022, Tencent will continue to increase its core technology research and development, building a matrix of self-developed products covering chips, operating systems, servers, databases, audio and video, security, etc. The financial report shows that the company’s R&D investment in the first quarter reached 15.4 billion yuan, a year-on-year increase of 36%.
Gartner report shows that Tencent Cloud ranks first in China’s CPaaS market.
In February, Tencent Cloud launched the industry’s first ultra-low-latency live broadcast technology white paper. It was the first to introduce WebRTC technology into the field of live broadcast, reducing the live broadcast delay to less than 500ms, and the comprehensive quality of service (QoS) far exceeded standard live broadcast. .
Currently, Tencent Cloud Audio and Video has 100 new-generation international codec patents, and its TRTC backend architecture technology has won the "China Patent Gold Award", covering 90 domestic audio and video customers.
In the face of structural changes in the Internet industry, Tencent insists on serving entities and has joined forces with more than 9,000 partners to launch more than 400 industry solutions in 30 industries that meet digital needs. Since the epidemic, WeChat Pay has continued to reduce fees and profits, and has assisted small and micro enterprises through actions such as the "Fireworks Plan" and "New Coronavirus Protection". It is estimated that more than 10 billion will be invested in many measures.
In terms of financial technology business, commercial payment transaction activities have continued to be weak since mid-March 2022, due to the re-emergence of the epidemic in some cities in China, which has had an impact on the growth of payment transaction amounts in categories such as transportation, catering services, and clothing. had a negative impact.
Game business
In the game business segment, Tencent’s game revenue reached 43.6 billion yuan, of which game revenue in the international market was 10.6 billion yuan, a year-on-year increase of 4 ; Local market revenue was 33 billion yuan, a year-on-year decrease of 1.
Tencent stated in its financial report that the increase in game revenue in the international market in the first quarter of this year was mainly due to the revenue growth of games such as "VALORANT" and "Clash of Clans". Among them, "VALORANT" maintained strong performance and its user base increased. And willingness to pay has increased.
In addition, "Apex Mobile Game" jointly developed by Tencent Photon Studio Group and Rebirth Studio has been officially launched on May 17, hoping to bring a new generation of tactical competitive experience to global players. Previously, there were more than 16 million pre-registered players on the official website.
Regarding the protection of minors, Tencent’s “Intellectual and Physical Double Hundred” charity plan launched by Tencent Growth Guardian, Tencent Games and the Tencent Foundation has also made new progress. At present, the “Intellectual and Physical Double Hundred” plan has promoted the implementation of 9 future classrooms and 6 future sports venues. As of the end of April, Tencent Future Classroom has opened a total of 1,547 classes, benefiting more than 100,000 students, many of whom are experiencing the charm of science and technology interest classes for the first time. The Shaoguan station of the online rope skipping competition held by Tencent Future Sports Stadium was successfully held in January. Hundreds of primary and secondary schools in the city actively participated, with a total of 3,297 teachers and students registering.
Through industry-leading minor protection measures, Tencent’s domestic minors’ gaming time and turnover ratio have stabilized at extremely low levels. In the future, Tencent will continue to adhere to the purpose of "removing blockages and combining them" to provide minors with a healthy and clear growth environment.
Growth in R&D investment
Social network revenue increased by 1 to RMB 29.1 billion, reflecting the increase in revenue from video account live broadcast services, but most of it was consumed by music live broadcasts offset by a decrease in revenue from game live streaming.
Revenue from the online advertising business in the first quarter of 2022 dropped by RMB 1.8 billion year-on-year to RMB 18 billion, reflecting weak advertising demand in industries such as education, Internet services and e-commerce, as well as the online advertising industry itself. The impact of regulatory changes was partially offset by stable demand from the fast-moving consumer goods industry and advertising revenue from the merger with Sogou.
Social and other advertising revenue fell by 1.5 billion yuan to RMB 15.7 billion, mainly due to the significant decrease in revenue due to the mobile advertising alliance’s advertising business adapting to regulatory influences. On the other hand, subscription list ads within official accounts have driven growth in advertising revenue, partially offsetting the decline in affiliate advertising revenue. Media advertising revenue decreased by 3.0 billion to RMB2.3 billion, reflecting declines in advertising revenue from media such as Tencent News and Tencent Video, which was partially offset by advertising revenue from the 2022 Beijing Winter Olympics.
The number of paying members of paid value-added services increased by 60% year-on-year to 239 million. By adapting best-selling comic and novel IPs, Tencent Video has strengthened its leading position in the long-form video streaming market and currently has 124 million paying members. In terms of music, benefiting from high-quality content and increased user willingness to pay, the number of paying members increased to 80 million.
On WeChat, the video account continues to gain popularity among users. Its news, general knowledge and entertainment content are increasingly enriched. Coupled with the improvement of recommendation technology, the video playback volume and usage time have increased significantly year-on-year. . The number of daily active mini program accounts has exceeded 500 million, and the total transaction volume has maintained rapid growth, further penetrating into retail, catering and people's livelihood services.
QQ provides young users with richer functions to facilitate them to create and share content and stay in touch with friends. Launched a new tool that allows users to display their customized Super QQ Show avatar in the short videos they create. Users can also share the videos or music they are enjoying with friends through status updates, allowing friends to access and play the same content through mini programs within QQ.
Q1 R&D investment was 15.383 billion yuan, a year-on-year increase of 36%. It has been a year-on-year increase of more than 25% for five consecutive quarters. As of April 2022, Tencent has published more than 56,000 patent applications in major countries and regions around the world, and the number of patent authorizations has exceeded 26,000, of which invention patents account for more than 90%.
In the first quarter, Tencent implemented cost control measures, adjusted some non-core businesses, and used tools such as mini programs, Tencent Meetings, and Enterprise WeChat to help Chinese companies and consumers cope with the new wave of epidemics* ** Overcame the difficult times and continued to invest in strategic growth areas, including enterprise software, video accounts and international market games. Looking forward to the future, Tencent stated that it will focus on key businesses and persist in innovation despite various challenges and cyclical changes, and continue to create value for users, partners and the entire society. Tencent's Q1 revenue was flat year-on-year, and net profit fell for three consecutive quarters2
Tencent, which is in the process of "shifting gears", continues to face pressure on its performance.
On May 18, Tencent’s first quarter report was released. In the first quarter of this year, revenue was 135.5 billion yuan, which was the same as the same period last year. According to non-international accounting standards, net profit was 25.55 billion yuan, a year-on-year decrease of 23%, three consecutive years. quarterly decline.
From the perspective of business segments, the "value-added services" business remained stable compared with the same period last year, while the "online advertising" business fell 18% year-on-year, and the "financial technology and enterprise services" business revenue increased 10% year-on-year to 428. 100 million, this part of revenue has become the engine of Tencent’s steady growth and is a bright spot in the financial report.
In terms of user data, as of the end of the first quarter of 2022, the number of combined monthly active accounts of WeChat and WeChat was 1.288 billion, a year-on-year increase of 3.8%, and the number of QQ mobile terminal monthly active accounts was 563 million, a year-on-year decrease of 7%; Tencent The number of fee-based value-added service accounts was 239 million, a year-on-year increase of 5.9%.
It is worth mentioning that during the period of performance pain, Tencent accelerated the integration of digital and real, increased investment in research and development, and upgraded from pursuing large-scale growth to pursuing high-quality growth. In the first quarter, Tencent’s R&D expenditure reached 15.38 billion yuan, a year-on-year increase of 36%, and it continued to consolidate the technical foundation to serve the real economy.
Ma Huateng, chairman and CEO of Tencent, said that in the face of industry challenges, the company has implemented cost control measures and adjusted some non-core businesses, which will help achieve a more optimized cost structure in the future. Looking forward to the future, the company will focus on key businesses and persist in innovation despite various challenges and cyclical changes, and continue to create value for users, partners and the entire society.
In the conference call after the financial report, Tencent executives said that they will take more balanced measures for investment. The previous adjustment of the JD.com shares held is a very important measure. For another company, Tencent also adopts the method of reducing its holdings and uses the proceeds from the reduction to repurchase. Tencent's investment strategy is still effective, and it will analyze more macro risks in the future and follow the latest trends at any time. "We will pay attention to risks and effectively manage risks. We will further make reasonable investments and consider reducing holdings to bring better cash flow to the company."
In addition, there are more concerns about the market In the game sector, Tencent executives said that the current approval status of game licenses is good and will show more positive signs in the future. Regulatory factors will promote the further development of the game industry.
First-quarter results were lower than outside expectations
Under the epidemic, Tencent’s performance was also under greater pressure and was lower than outside expectations.
Data show that revenue in the first quarter was 135.5 billion yuan, a year-on-year increase of almost 0. According to non-international accounting standards, net profit was 25.55 billion yuan, a year-on-year decrease of 23%. If Tencent’s equity holders should In terms of profit, the decline was even greater, with a net profit of 23.4 billion yuan, a year-on-year decrease of 51%, directly "cut in half".
Let’s compare brokerage firms’ forecast data for Tencent’s first quarter report:
CITIC Securities: Tencent’s short-term performance is under pressure and its core value will not change. The company is forecast to achieve revenue of 142.7 billion yuan (a year-on-year increase of 5.5) and Non-IFRS net profit of 26.8 billion yuan (a year-on-year decrease of 19) in the first quarter.
Guosen Securities: Tencent is expected to achieve revenue of 140.5 billion yuan in the first quarter, a year-on-year increase of 3.8%, and net profit under Non-IFRS will decrease by 1.75% year-on-year to 27.3 billion yuan.
CICC: It is predicted that Tencent’s first-quarter revenue will be basically flat at 135.9 billion yuan year-on-year, and its adjusted net profit will fall by 1.7 to 27.3 billion yuan year-on-year.
China Merchants Securities: Tencent’s revenue in the first quarter of 2022 is expected to reach 138.584 billion yuan, and its adjusted net profit is expected to reach 28.133 billion yuan.
Shenwan Hongyuan (Hong Kong) expects Tencent Holdings to achieve revenue of 14 billion yuan in the first quarter, a year-on-year increase of 4, and net profit of 28.2 billion yuan, a year-on-year decrease of 15.
It can be said that compared with the expectations of these leading securities companies, Tencent’s revenue or net profit are lower than outside expectations.
Tencent also explained the decline in net profit in its financial report because the overall increase in costs and expenses was faster than revenue, and the net contribution of associated companies turned from profit to loss.
The digital economy has become a new engine
Looking at the specific business situation, advertising revenue has declined significantly, game revenue growth is weak, and financial technology and enterprise services The business achieved rapid growth and became a new support for performance.
In terms of business, the value-added services segment including games, videos, etc. has revenue of 72.74 billion yuan, accounting for 54% of the total revenue; the online advertising segment has revenue of 17.99 billion yuan, accounting for 13%, and finance The revenue of the technology and enterprise services sector was 42.77 billion yuan, accounting for 32%.
Specific business line performance is as follows:
Domestic games: revenue of 33 billion yuan, a year-on-year increase of 1
Overseas games: revenue of 10.6 billion yuan, a year-on-year increase of 4
Social networks: revenue of 29.1 billion yuan, a year-on-year increase of 15%
Social advertising: revenue of 15.7 billion yuan, a year-on-year decrease of 15%
Media advertising: revenue of 2.3 billion yuan , down 30% year-on-year
Fintech and enterprise services: revenue of 42.8 billion yuan, up 10% year-on-year
It is understood that since Tencent’s “930 Reform” in 2018 , the continuous deepening of the industrial Internet is showing results: the revenue share of the financial technology and enterprise services sectors has increased from 25.5 in the first quarter of 2019 to 32% disclosed in the first quarter. Not only has the overall revenue health improved, but Tencent has also served the real economy. Contributed to a new engine of high-quality development.
The financial report explained that although the amount of commercial payment transactions and enterprise service revenue decreased in March this year due to the impact of the epidemic, Tencent has adopted certain cost control measures, including repositioning its IaaS services, from simply pursuing Revenue grew to achieve healthy growth and proactively reduced loss-making contracts.
In terms of games, in the first quarter, Tencent’s game revenue in the local market fell by 1 to 33 billion yuan. Among them, the revenue growth of recently launched games such as "League of Legends Mobile Game" and "Spade Battle" was mostly offset by the decline in revenue of games such as "Tianya Mingyue Dao Mobile Game" and "Call of Duty Mobile Game".
In the international market, Tencent’s game revenue increased by 4 to 10.6 billion yuan. Among them, the revenue of games such as “VALORANT” and “Clash of Clans” increased, but the revenue of “PUBG Mobile” declined. Tencent explained that during the epidemic prevention and control period, the gaming industry is still in a downward trend.
In the value-added services business, social network revenue increased by 1 to 29.1 billion yuan, reflecting the increase in revenue from video account live broadcast services, but most of it was offset by the decrease in revenue from music live broadcasts and game live broadcasts.
At the same time, online advertising business revenue in the first quarter fell by 1.8 to 18 billion yuan year-on-year. Tencent explained that this was due to weak advertising demand in industries such as education, Internet services and e-commerce, as well as the impact of regulatory changes in the online advertising industry itself, but advertising expenditures in the fast-moving consumer goods industry remained stable.
Among them, social and other advertising revenue fell by 1.5 to 15.7 billion yuan, mainly due to the regulatory impact of Tencent Mobile Advertising Alliance’s advertising business adjustment, revenue dropped significantly, and media advertising revenue fell by 3.0 to 2.3 billion yuan.
Increase investment in R&D
It is worth noting that Tencent increased investment in R&D this quarter. In the first quarter of 2022, Tencent's R&D investment maintained a year-on-year growth of 36%, reaching 15.38 billion yuan.
Tencent believes that the core competitiveness of technology companies is products and technologies. Although it is in a period of transformation, it continues to increase its investment in research and development and continuously improves the underlying capabilities of service entities. In addition, R&D investment in the first quarter of 2022 will be 15.38 billion yuan. Since 2019, its cumulative investment in R&D has reached 136.5 billion yuan.
At present, Tencent has established a complete self-research system including servers, operating systems, chips, SaaS, etc., to provide a solid technical base for serving the real economy.
As of April 2022, Tencent has published more than 56,000 patent applications in major countries and regions around the world, and the number of patent authorizations has exceeded 26,000, of which invention patents account for more than 90%.
Recently, Ma Huateng admitted in Tencent’s Sustainable Social Value Report that Tencent is facing a new stage of coexistence of challenges and development: on the one hand, the growth rate of revenue and profits has slowed down; on the other hand, Tencent has also It is believed that this can be used to shift gears and create higher quality development.
Tencent said in its financial report, "Looking to the future, we will focus on key businesses and persist in innovation amidst various challenges and cyclical changes, and continue to create value for users, partners and the entire society." Tencent Q1 Camp The closing was flat year-on-year, and net profit fell for three consecutive quarters.
After the market closed on May 18, Tencent released its first quarter 2022 performance report, and the overall performance was not optimistic. The financial report shows that Tencent achieved revenue of 135.471 billion yuan in the first quarter, which was flat year-on-year and down 6% from the previous quarter. It achieved net profit of 23.413 billion yuan, down 51% from the same period last year and 75% from the previous quarter. Under non-IFRS, the net profit was 25.545 billion yuan, a year-on-year decrease of 23% and a month-on-month increase of 3%.
iiMedia Consulting CEO Zhang Yi told a reporter from Securities Daily, “After years of rapid growth, Tencent’s net profit fell sharply in the first quarter of this year. This performance is not surprising and shows that The company is in a period of performance pain. Previously, Tencent focused on ToC business, including the mobile game "Honor of Kings", WeChat and other flagship products.
However, the traffic dividends of existing products have peaked. If you want to If you continue to use the original business model, you must further expand overseas markets to seek rapid growth in market share and revenue, or continue to increase research and development efforts in innovative products. In the era of digital economy, ToB business has become a key factor in the breakthrough growth of Internet platforms. Tencent needs to adjust its original business model.”
Changes in the number of users of its main products also reflect the narrowing of Tencent’s market space. In the first quarter of this year, the combined monthly active users of WeChat and WeChat reached 1.288 billion, a year-on-year increase of 3.8 and a month-on-month increase of 1.6; QQ mobile monthly active users fell to 564 million, a year-on-year decrease of 7 and a month-on-month increase of 2.1
Business structure changes from virtual to real
From the perspective of revenue composition, in the first quarter of this year, Tencent’s value-added service business revenue was 72.738 billion yuan, which was the same as the same period last year. Among them, game revenue in the local market was 33 billion yuan, a year-on-year decrease of 1; game revenue in the international market was 10.6 billion yuan, a year-on-year increase of 4 (an increase of 8 based on fixed exchange rates).
A brokerage analyst who focuses on the TMT industry told a reporter from Securities Daily that the performance of Tencent Games in the domestic market is not satisfactory. On the one hand, the implementation of protection measures for minors has affected part of Tencent Games' revenue; on the other hand, in the environment where version numbers have been suspended, Tencent Games' basic base is still supported by old games. Among them, "Honor of Kings", which ranked first in the company's revenue in the first quarter, has gone through a 7-year golden cycle and is in urgent need of new games to fill its place.
The financial report shows that if ranked by the number of daily active users, Tencent Games’ “Honor of Kings” and “Peace Elite” are still the top two mobile games in the domestic market; “Golden Shovel” launched in August 2021 Shovel War” moved into sixth place. In addition, Tencent's strategy mobile game "Return to the Empire" launched on March 29 this year also performed well, ranking second in the same category of domestic games in April.
“On April 12 this year, the review of game version numbers was restarted, marking that the domestic game industry is about to usher in a new round of growth cycle of high-quality games. Although Tencent is not included in the first batch of approval lists, it will also be included in the review list. Benefit from the follow-up review,” the above-mentioned analyst further said.
In addition, Tencent’s financial technology and enterprise services segment (digital economy segment) performed well in the first quarter, achieving revenue of 42.768 billion yuan, a year-on-year increase of 10%. For the first time, its contribution ratio exceeded that of games, becoming Tencent’s new Performance growth engine.
Tencent stated that its enterprise service revenue declined slightly year-on-year in the first quarter, which was due to the company's repositioning of IaaS services, from purely pursuing revenue growth to achieving healthy growth, and proactively reducing loss-making contracts.
R&D investment of 15.383 billion yuan
At the cost level, Tencent’s main expenses in the first quarter of this year included transaction costs (bank fees, channel and distribution costs) of 30.9 billion Yuan, employee welfare expenses are 29.229 billion yuan, content costs are 15.733 billion yuan, intangible asset amortization is 8.597 billion yuan, bandwidth and server hosting fees are 7.476 billion yuan, promotion and advertising expenses are 5.339 billion yuan, properties, equipment and equipment, investment properties and The depreciation of right-of-use assets was 7.322 billion yuan.
Among them, 13.067 billion yuan in employee welfare expenses belongs to R&D investment. The financial report shows that the company invested 15.383 billion yuan in R&D in the first quarter of this year, a year-on-year increase of 36%, setting a new high in R&D investment since Tencent was founded.
A review of financial reports over the years shows that since 2018, Tencent’s R&D investment has maintained an annual growth rate of 30%. On the basis of continuous investment in R&D, Tencent has established a complete self-research system including servers, operating systems, chips, SaaS, etc., providing a solid technical base to serve the real economy.
As of April 2022, Tencent has published more than 56,000 patent applications in major countries and regions around the world, and the number of patent authorizations has exceeded 26,000. Among them, invention patents account for more than 90%.
Kuang Yuqing, founder of Lens Company Research, told a reporter from Securities Daily that under the background of stricter policy supervision, Tencent is facing the need to adjust its business direction, so it needs to continue to increase investment in research and development to ensure business innovation.
Ma Huateng, chairman and CEO of Tencent, said that in the face of industry challenges, the company has implemented cost control measures and adjusted some non-core businesses, which will help achieve a more optimized cost structure in the future. Looking forward to the future, the company will focus on key businesses and persist in innovation despite various challenges and cyclical changes, and continue to create value for users, partners and the entire society.