Tencent shrugs off regulatory glare, posts 25% increase in revenue, 51% in profit

Pandemic habits continued to drive the growth of Chinese technology giant Tencent, as its revenue for the first quarter of its financial year grew 25% year-on-year and its operating profit, per IFRS norms, increased 51%. The company's strong results for the period were driven by growth in its gaming and fintech units, even as it laid out plans to make widespread investments in its business. 

"During the first quarter, we delivered solid growth across our businesses while continuing to enhance our products and services," Ma Huateng, chairman and CEO of Tencent, said in a media statement. "As we look into the future, we see expanding opportunities in the various verticals in which we operate... we are stepping up our investment in areas including business services and enterprise software, high-production-value games, and short-form video."

For Q1, revenues from online advertising increased by 23% to RMB 21.8 billion (US$3.39 billion) on a year-on-year basis, reflecting higher demand from categories such as ecommerce platforms, education and fast-moving consumer goods, as well as consolidation of Bitauto's advertising revenue. However, the first quarter saw some softness in the advertising business, with revenue for the segment falling 11% quarter-on-quarter, with the media segment declining especially sharply by 22% in this period. 

"On the advertising side ... given the size and scale of the China advertising market, I think it would be, you know, naive to assume there'll ever be a period going forward when every industry is green lights and overperforming," James Mitchell, Tencent's chief strategy officer, told analysts. "The impact of IDFA deprecation has actually been, I think, less than widely feared for a number of reasons. We are in a period when there's some sort of content airing uncertainty, but ... that should begin to clarify from July 1 onwards."

Games revenues grew by 17% to RMB 43.6 billion ($6.78 billion), primarily due to revenue growth from mobile games worldwide, including Honour of Kings, PUBG Mobile, and Peacekeeper Elite, as well as recently launched titles such as Moonlight Blade Mobile. 

Combined MAUs (monthly active users) of Weixin and WeChat was 1.24 billion. Mobile devices MAU of QQ was 606 million. The metrics for the latter fell 12.6% year-on-year. Mitchell told analysts on a post-results call that "last quarter the GMV was growing at a triple-digit rate year-on-year." The firm is helping smaller companies get aboard the platform, making Mini Programs, building an ecosystem for intermediaries to assist merchants, and helping offline merchants in opening and operating their mini-program experiences. 

In terms of its future investments, Tencent disclosed that it would focus on three specific areas:

• Business services: This includes investments in areas such as headcount and infrastructure to support the rapid growth of the business, strengthen its productivity SaaS products and security software as well as partnerships with and investments in SaaS providers and independent software vendors.
• Gaming: This includes increasing investments in game development, and in particular focusing on large-scale and high-production-value games that can appeal to users globally. Tencent also said it will invest more in games for more targeted audiences, building up IP franchises and developing them across media and invest in "next generation game experiences" such as cloud games.
• Short-form video: Tencent said it is incubating the content ecosystem for Video accounts, which connect users with real-life content and bridge high-quality content creators with their customers. The company will provide production and monetisation tools to content creators too. By merging Tencent Video and WeiShi, the company aims to boost its long-form video capabilities and hopes to grow self-commissioned production.