Tencent Holdings saw profits jump 82 per cent in the second quarter, beating analyst estimates, on the back of new video gaming growth and improved advertising performance.
Profit reached 47.6 billion yuan (US$6.6 billion) for the quarter ended June, up from 26.2 billion yuan in the same period a year ago. Total revenue for the Hong Kong-listed firm reached 161.1 billion yuan, up 8 per cent year on year from 149 billion yuan. Analysts expected 40.3 billion yuan in profit and 161.3 billion yuan in revenue for the quarter, according to consensus estimates from Bloomberg.
“Our domestic games revenue resumed growth, and our international games revenue accelerated growth, due to increased user engagement at several of our evergreen titles, and the successful launches of certain new games,” Tencent founder and CEO Pony Ma Huateng said in a statement. “Looking forward, we continue to invest in our platforms and technologies including AI, enabling us to create new business value and better serve user needs.”
Video gaming sales, traditionally Tencent’s strongest revenue driver, grew 9 per cent in both domestic and international markets, reaching 34.6 billion yuan at home and 13.9 billion yuan overseas.
The world’s largest video gaming business by revenue has seen its fortunes in the industry improve since the May release of Dungeon & Fighter (DnF) Mobile, which became an instant hit in China. Tencent has also been seeking new sources of revenue with artificial intelligence (AI) and short videos on its super app WeChat, China’s biggest social network.
A month after launch, DnF Mobile had raked in US$270 million from Apple’s App Store in China alone, according to Sensor Tower data in June. The strong momentum continued through July, as it remained the top grossing game on the iOS charts, according to a research note by Jefferies last week. Jefferies raised its estimates for DnF Mobile’s game grossing in 2024 to 24 billion yuan from the previous 19 billion yuan.
Tencent said in its earnings release that it expects DnF Mobile to become its “next evergreen major hit”, joining consistent revenue drivers Honour of Kings and Peacekeeper Elite.
Revenue from Tencent’s value-added services – which includes video gaming and social networks – came in at 78.8 billion yuan in the quarter, up 6 per cent from a year ago.
Tencent’s revenue from online advertising grew by 19 per cent year on year to 29.9 billion yuan in the June quarter, thanks to growth in WeChat’s video accounts and the company’s video streaming platform. The number of active WeChat users globally, including mainland China users, reached 1.37 billion by the end of June.
In AI, Tencent has been pushing the adoption of its enterprise cloud infrastructure and self-developed Hunyuan large language model (LLM) in various industries. Last month it upgraded its high-performance computing network to improve the efficiency of network communications and LLM training, and it added Meta Platforms’ new Llama 3.1 model to its cloud platform.
However, China’s AI industry is engaged in a cutthroat price war, which has embroiled tech giants including Tencent, Baidu, and Alibaba Group Holding, owner of the South China Morning Post. A new crop of start-ups such as Zhipu AI have joined in, as well, offering their own discounts.
Revenue from fintech and business services was also up by 4 per cent to 50.4 billion yuan.
Tencent shares in Hong Kong fell 1.3 per cent on Wednesday ahead of the earnings announcement, closing at HK$373.8 (US$48). The company has been enjoying a rebound in its share price, which has risen by more than 26 per cent this year.
Separately, Tencent Music Entertainment Group reported a 1.7-per cent year-on-year revenue decline to 7.16 billion yuan during the quarter, marking its fourth consecutive quarter of decline. Profit, however, rose 29.6 per cent year on year to 1.68 billion yuan. Tencent spun off its music business in 2018 for a public listing, but it maintains a majority stake.
In a filing on Tuesday, Tencent Music attributed falling revenue largely to revenue declines in a business segment that includes live streaming, an area that has been facing increased regulatory scrutiny from Beijing and rising competition.
Tencent Music’s New York-listed shares fell 13 per cent on Tuesday after the earnings results. Shares were down 18 per cent in Hong Kong on Wednesday.
