Tencent scores a big Q2 before Trump’s WeChat ban plan

Tencent's total revenue surged nearly 30% year-on-year to US$16.5 billion in the second quarter, with a net profit boost of 28.2% to $4.35 billion, topping analyst estimates.

The impressive performance during Q2 (ending June 30) is being attributed to the tech giant’s value-added services (VAS), such as social networks and online games.

Online advertising—despite only accounting for 16% of Tencent’s total revenue—saw promising growth during the second quarter. Social ad revenue was particularly strong, reporting a 27% increase year-on-year. Much of this rise is due to how advertisers can now channel public online or offline traffic to their private domains through Weixin and WeChat apps like Mini Program and Official Accounts. However, media ad revenue did decline by 25% because of a weak advertising demand from brands and delayed content production and release times during COVID-19.

Online games, one of the most significant business categories for the tech powerhouse, continued its strong growth on the heels of a solid first-quarter performance. Driven by smartphone games, the revenue of the sector grew by 40% versus the same period last year. Tencent’s online gaming business aligned with overall user activity during the pandemic. According to Tencent, user activity stayed normal locally while increasing internationally. “In China, user time spent on our smartphone games increased year-on-year but decreased quarter-on-quarter due to seasonality and back-to-office behavior,” the report stated.

Tencent’s multi-purpose social platforms, WeChat and Weixin (微信), have hit 1.21 billion monthly active users in total as of June 30. The duo, said chairman and CEO Ma Huateng (also known as Pony Ma) in the earnings call, are two very different products. “Weixin is a chat [app] to serve the users in the Mainland of China, whereas WeChat is a sister product which serves users outside of the mainland of China.”

The group also highlighted the revitalisation of its content consumption in WeChat’s Official Accounts feature, reporting a rise in page reviews after three years of decline. Meanwhile, Tencent launched its Mini Stores feature, which backs small and mid-size enterprises by optimising their digital storefront operations by supporting functions like livestreaming, order management, and after-sales services.

Yet Tencent’s stock tanked by 10.5% after a potential WeChat ban order from President Trump was released on August 6. Chief financial officer, Shek Hon Lo, responded to concerns over the potential ban on WeChat by explaining that the order was focused on WeChat’s US service, which won’t affect the company’s other businesses. “We are in the process of seeking further clarification from relevant parties in the US,” he noted.