Chinese tech company Tencent is a gaming giant and the parent company of WeChat, the ubiquitous social messaging app in China.
Cheng Xin | Getty Images News | Getty Images
Chinese social media and game companies Tencent there was reported profit more than expected in the third quarter ended September 30, spurred by growth in games, advertising and cloud services.
Tencent reported profit attributable to shareholders rose 47% year-on-year to 53.23 billion yuan ($7.37 billion) in the third quarter, compared with LSEG’s estimate of 46.18 billion yuan for the period.
Management says Tencent will generate “significant” free cash flow next year that it can use for dividends and buybacks.
The company’s revenue rose 8% year-on-year to 167.19 billion yuan, short of analysts’ forecast of 167.82 billion yuan.
In an early indication of the stimulus taking effect, the value for unspecified transactions ticked up in October, reversing the decline in the third quarter, the company’s management said in the earnings call later in the session. Tencent operates WeChat Pay, one of the two major mobile payment apps in China.
The company cautioned that economic recovery will take time, but is expected to grow rapidly in the long term, given Beijing’s determination to revive the national economy. In late September, Chinese authorities began a series of announcements aimed at supporting growth, boosting stock market gains.
Gaming remains the backbone of the company, with domestic unit revenue up 14% year to 37.3 billion yuan, while for international games taken up 11% to 14.5 billion yuan on a constant currency basis.
The company notes that existing and new games have “green potential.”
Marketing services revenue, formerly known as online advertising, rose 17% year-on-year to 29.99 billion yuan, making it one of the fastest-growing categories outside of games. Tencent attributed the growth to “strong advertiser demand” for short videos, mini-programs and search features on its messaging app – called Weixin in China and WeChat overseas.
Average global monthly users for messaging apps rose 3% from a year ago to 1.38 billion in the third quarter.
Advertising spending from games and e-commerce gained ground, more than offsetting declines in revenue from real estate and food and beverage.
AI development
The company also touts the benefits of using its own self-developed artificial intelligence tools, amid a wider global boom in the AI ​​space:
“We are increasingly seeing real benefits from deploying AI in our products and operations including marketing and cloud services, and will continue to invest in AI technology, tools and solutions that help our users and partners,” Tencent said in an earnings release.
However, management noted in Wednesday’s earnings call that cloud revenue for AI training in China is not as “explosive” as it is in the US. services ecosystem and fewer AI startups in the country are buying cloud capabilities.
The company said that searches on the Weixin app have seen growth in commercial inquiries and click-through rates, thanks to its large language modeling capabilities.
In June, Tencent upgraded its advertising feature that uses AI to select or help create targeted ads in articles and videos based on the messaging app. The update has led to a ninefold increase from last year in the number of accounts using the feature — to more than 200,000 users, according to the company.
Tencent is looking to create a short video account and mini-program e-commerce offering to compete with ByteDance’s Douyin – a local version of TikTok – and major online shopping platforms.
In the third quarter, Tencent said that the gross merchandise value of the mini program – a measure of the industry’s sales over time – expanded by “high teens” from a year ago to more than 2 trillion yuan, as people used the app to help them order food. , electric vehicle charging and medical services.
Most of that GMV comes from services rather than physical goods, management said on the earnings call.
