Tencent, the Chinese tech giant, exceeded analyst estimates for revenue and profit in the first quarter of the year. The company’s core gaming business saw slightly better sales, while improved profitability was achieved in its advertising and business services division. In terms of revenue, Tencent reported 159.5 billion Chinese yuan ($22 billion), surpassing the 158.4 billion yuan that was expected. Profit attributable to equity holders of the company also outperformed, reaching 41.9 billion yuan compared to the anticipated 36.64 billion yuan.
Tencent’s adjusted net profit soared by 62% year-on-year, indicating the fastest growth rate since the March quarter of 2021 based on data from LSEG. Revenue witnessed a 6% year-on-year increase, highlighting the company’s progress towards recovery after experiencing its first annual revenue decline in 2022. To refocus on its core gaming division and essential sectors like advertising and cloud computing, Tencent initiated a cost-cutting initiative and divested non-core businesses. Consequently, investors have rewarded the company with a 30% increase in shares this year.
Despite a 2% year-on-year decline in revenue in Tencent’s China gaming business for the first quarter, an improvement from the 3% decline in the previous quarter was noted. The decrease was primarily attributed to a drop in revenue from the game “Honour of Kings” against a high base from Chinese New Year and lackluster monetizable content from “Peacekeeper Elite.” On the other hand, international games revenue displayed a 3% increase year-on-year, surpassing the 1% growth observed in the prior quarter. The growth was fueled by heightened player engagement in games like PUBG Mobile and a resurgence in popularity of titles from the studio Supercell. Despite these positive developments, growth in Tencent’s gaming division remains subdued.
Tencent’s online advertising division saw a 26% year-on-year revenue increase in the first quarter, representing acceleration from the fourth quarter. This growth was attributed to enhanced user engagement across various features on WeChat and improvements in Tencent’s AI-powered advertising infrastructure. Additionally, gross profit for the ad business surged by 66% year-on-year to 14.5 billion yuan. The fintech and business services unit, encompassing WeChat Pay and cloud computing, recorded a 7% year-on-year revenue rise to 52.3 billion yuan. Gross profit for this division jumped by 42% year-on-year, driven by a focus on cultivating high-quality revenue streams such as advertising in Video Accounts, Weixin Search, Mini Games platform service fees, and eCommerce technology service fees.
Tencent’s performance in the first quarter of the year showcased resilience and growth across its key business segments. Despite challenges in the gaming division, the company’s strategic initiatives to streamline operations and enhance profitability in advertising and business services have paid off. As Tencent continues to navigate the evolving tech landscape, its ability to innovate and adapt will be crucial in sustaining its upward trajectory.