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Tencent's first quarter net profit of 27.2 billion yuan, an increase of 17%

May 15, 2019 17:26
source: Oriental Fortune Securities Institute

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  on WednesdayTencent HoldingsAnnounced the first quarter financial report for the 2019 fiscal year,Financial reportFirst quarter of the companyNet profit27.2 billion yuan, an increase of 17% year-on-year, the market is estimated at 19.4 billion yuan. The first quarter revenue was 85.47 billion yuan, and the market estimate was 88.71 billion yuan.

The financial report shows that Tencent's operating profit for the first quarter was 36.74 billion yuan. In the first quarter, WeChat and WeChat consolidated monthly active accounts reached 1.112 billion, a year-on-year increase of 6.9%; QQ smart terminal monthly active accounts increased slightly to over 700 million.

The financial report also showed that Tencent's smartphone game revenue in the first quarter fell 2% year-on-year to RMB 21.2 billion, due to the decrease in new game releases, but the above-mentioned revenue increased by 11% due to seasonal activities.

Tencent's financial technology and corporate services revenue in the first quarter increased 44% year-on-year to RMB 21.8 billion, mainly driven by commercial payments, other financial technology services (such as microfinance) and cloud business.

  Tencent HoldingsWe said that in the second quarter of 2015, we have released and will soon release a variety of moderate to heavy games, including action, role-playing games and simulation strategy games, as well as the tactical competitive game "Peace Elite". Overseas games (such as "Fortress Night" and "PUBGMOBILE") launch quarterly passes, which are important contributions to user activity, billing rates and revenue.

  Business review and outlook

1. Summary of company strategy

Since the beginning of this quarter, we have begun to separately disclose the new segment of 'Financial Technology and Corporate Services' in our financial reports. These services generated RMB 21.8 billion in revenue this quarter. We believe that its size and scope reflect the following:

- As the Chinese economy develops, the demand for digital payment and financial services expands, and more companies seek business opportunities brought by the 'industry Internet', the demand for such services is rapidly increasing;

- synergies between these services and some of our existing consumer services (such as our communications and social platforms) and peer-to-peer payment services, or synergies between our small programs and enterprise WeChat services); as well as

- We have made significant internal investments in these services since the beginning of the year and continue to this day, helping us to build a strong business scale and accumulated rich operational experience in these areas.

Taking the payment business as an example, we launched the payment service on the PC side in 2005. This has laid the basic infrastructure for us. After that, we launched the payment service on WeChat and launched it in 2014. The red envelope feature unlocks the energy of social payments. Since 2016, we have promoted to offline merchants and deepened merchant penetration through easy-to-use QR codes and small program solutions. Through these initiatives, we offer point-of-sale solutions for tens of millions of merchants, from flagship partners to long tail merchants. To do so, we need to develop and upgrade solutions that serve consumers and merchants, while meeting regulatory requirements and the security requirements of large-scale transactions. By implementing these initiatives, we make our payment business revenues of the current size and support financial services (such as individuals)Financial managementAnd the effective distribution of microfinance products). We attach great importance to risk management, so the business development in financial technology has been gradual. In addition, the FinTech business also provides complementary partnerships and experience with our emerging enterprise services products.

As far as cloud business is concerned, our cloud infrastructure has reached a massive scale to meet internal cloud needs, even before providing services to external customers. Our cloud business began in the Internet industry we are good at, such as gaming and video verticals, and has since made breakthroughs in the smart, financial, retail, livelihood services, travel and healthcare industries. With strong infrastructure and years of accumulated technical strength, we can help more and more corporate customers implement digital upgrades.

From our case of investment in the payment and cloud services for more than a decade, we show how we allocate funds to a range of businesses that are not profitable and in the investment phase, and ultimately expand our revenue sources and achieve them in the long run. Continued profit growth, including communications services, games, advertising, digital content services, and now financial technology and corporate services. We will continue to invest in emerging services and businesses as we believe that technology will continue to bring new consumer and business opportunities.

2, the company's financial performance

Revenue in the first quarter of 2019 increased by 16% year-on-year, mainly driven by commercial payment services and other financial technology services, social advertising and digital content services.

Non-GAAP operating profit increased by 13% year-on-year. Operating profit increased by 20% year-on-year. Non-GAAP earnings attributable to equity holders of the Company increased by 14% year-on-year. Earnings attributable to equity holders of the Company increased by 17% year-on-year.

  Communication and social

In the first quarter of 2019, the number of monthly active accounts of WeChat and WeChat reached 1.112 billion, a year-on-year increase of 6.9%. In the first quarter, the number of monthly active accounts of QQ smart terminals increased slightly to over 700 million. Among them, the activity of young users on the QQ platform increased, and the number of monthly active accounts recorded double-digit growth year-on-year.

Chinese Internet users are increasingly using WeChat and QQ's in-app camera features to record short videos and share them in the form of personal chats, group chats and timelines. Now, users upload hundreds of millions of short videos to our communications and social platforms every day. We believe we are the leading platform for uploading and viewing such user-generated videos in China.

We launched the mobile phone QQ 8.0 version, added QQ small program and expanded functions, and recommended new friends with the same interest for young QQ users. WeChat allows users to share small programs in various vertical fields such as information, products and services in groups, and promote the expansion of service models such as community grouping, so that the active user base of WeChat non-game applets continues to grow steadily.

  Online game

The running revenue of the game business increased by 10% year-on-year, while the reported revenue decreased by 1% year-on-year to RMB 28.5 billion, including the difference in revenue from the revenue from the sales of our game props due to the revenue deferral policy. Benefiting from the upgrade of the peak season and major PC and smartphone games, both the running revenue and the reported revenue recorded a sequential increase.

Smartphone game revenue (including smartphone game revenue attributable to our social network business) fell 2% year-on-year to RMB 21.2 billion due to a decrease in new game releases, but due to seasonal activities, the above revenue increased by 11%. In the mainland China market, the total number of daily active accounts of our smartphone game portfolio recorded a year-on-year increase, while the number of paying subscribers recorded a sequential increase. The “Glory of the King” released a content update in January, which increased user activity and promoted the increase in the number of paid users and revenue. "a perfect worldMobile Games (a 3D massively multiplayer online role-playing game based on long-term personal IP) has quickly become one of the highest-income smartphone games in China and has added a total of our role-playing game portfolio. The number of daily active accounts. Since we released at the end of the season,a perfect world"Mobile games", the game brought a lot of running water income in the first quarter, and most of the running water income will be deferred until the later period to be recognized as the reported income, so the game has limited contribution to the income reported this quarter. According to App Annie's data, “PUBG MOBILE” has more than 100 million monthly active accounts in the international market (excluding mainland China) since February. We launched a new Royale Pass in March to drive revenue growth.

In the second quarter of 2019, we have and will soon release a variety of medium to heavy games, including action, role-playing games and simulation strategy games, as well as the tactical competitive game "Peace Elite". Overseas games (such as "Fortress Night" and "PUBG MOBILE") launch quarterly passes, which have important contributions to user activity, billing rates and revenue, and some quarterly passes for some of our major games in China are in early stages of testing, such as "Cross-fire line mobile game", "King glory" and "QQ Flying Hand Tour".

Our PC client game revenue was RMB 13.8 billion, down 2% year-on-year and 24% quarter-on-quarter. In the first quarter, the main PC game core paying users remained healthy and active. "League of Legends" has accelerated the introduction of new skin styling and increased user activity. Recently, a number of new skin stylings have been particularly popular, which has also led to a recovery in running water revenue. At the end of January, “Dungeon and Warriors” released a major content update that raised the upper limit of the character level. In addition to the promotional package launched during the Spring Festival, the number of paying users recorded a sequential increase.

  Digital content

The number of subscription accounts for value-added services increased by 13% year-on-year to 165.5 million, mainly driven by the number of video and music service subscriptions. The number of Tencent video subscription accounts increased by 43% year-on-year to 89 million, mainly due to the popularity of homemade IP content, such as “Anqing Xiangxi” (the third season of “Ghost Blowing Lights”), “Yi Tian Tu Long Ji” (adapted according to Jin Yong’s famous martial arts novels) ), "Douro China" (second season). The number of Tencent video subscription accounts is roughly the same, and if some of the episodes are delayed, it may contribute more to the increase in the number of subscription accounts.

Tencent video daily broadcasts grew rapidly year-on-year due to the popularity of short videos distributed by Tencent video applications. With our rich IP portfolio, we've created great long video content, such as the variety show "Creation Camp 2019" ("Creation 101" Season 2). In order to further enhance the participation of video viewing users, Microvision added new features, allowing “Creation Camp 2019” viewers to vote for contestants and share short videos of the program with WeChat and QQ friends.

  Online Advertising

Our online advertising revenue increased by 25% year-on-year to RMB 13.4 billion. Due to the challenging macro environment and the large base impact, the growth rate of this business has slowed down compared with previous years. Affected by the off-season in the first quarter, online advertising revenue fell 21% from the previous quarter. Social and other advertising revenue increased by 34% year-on-year to RMB 9.9 billion, benefiting from the increase in the fill rate and advertising volume of each advertising inventory. The bidding volume in the first quarter was less than the e-commerce season in the fourth quarter of last year, which caused the cost per click to decrease. Media advertising revenue increased by 5% year-on-year to RMB 3.5 billion, mainly due to the growth of information flow advertising. However, the delayed broadcast of some popular episodes reduced the video ad inventory, so the long video ad revenue was basically flat. We will continue to steadily develop our advertising business with a focus on optimizing advertiser returns, not focusing on expanding short-term revenue.

  Financial technology and corporate services

Revenue from financial technology and corporate services increased 44% year-on-year to RMB 21.8 billion, mainly driven by commercial payments, other financial technology services (such as micro-credit) and cloud business. Financial technology and corporate services revenues were flat, as the remaining provisions have been transferred to the Chinese people since mid-January.bankThe interest income of the balance of the reserve fund is no longer recorded, which adversely affects the income of financial technology and corporate services. Due to the increase in transaction volume per user, the amount of commercial payment transactions increased year-on-year. User transaction frequency and transaction volume increased, benefiting from more than double the monthly active merchants. In Hong Kong, we work with a number of partners and receive Hong Kong Virtual Property from the Hong Kong Monetary Authority.bankLicence, through our expertise and experience in financial technology, introduces innovative financial services to Hong Kong.

The revenue of the cloud business maintained a rapid year-on-year growth, mainly due to the expansion of IaaS, PaaS and SaaS product offerings and product enhancements, which led to an increase in the paying customer base. We have upgraded cloud-related enterprise services with higher security standards for the financial services industry. We have provided digital public services to consumers through various initiatives, such as Digital Guangdong and Yunnan Smart Tourism Cooperation Project.

(Article Source:Oriental wealthSecurities Research Institute)

                (Editor: DF134)

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