China’s largest company, the social media, games and entertainment giant Tencent achieved net profits of RMB47.7 billion ($7.39 billion) in the first three months of the year. That was an increase of 65% on the comparable period last year when coronavirus was at its peak in China. It was a 19% decrease from the fourth quarter of 2020.
Revenues in the January to March period were up by 25% to RMB135 billion ($20.9 billion) year-on-year, but only 1% higher than the final quarter of last year.
The company achieved “notable growth for business services as well as online advertising revenue streams, while stepping up investment in areas including business services and enterprise software, high-production-value games, and short-form video,” according to management.
Its gigantic portfolio of share stakes in unlisted start-ups and listed operating companies delivered more mixed results. “Our listed investment portfolio experienced meaningful value appreciation, while contributing mixed results to our associate income, with certain investees delivering wider associate losses due to their investments in new initiatives such as community group buying activities,” the company said.
Tencent’s regulatory filing to the Hong Kong Stock Exchange made no mention of regulatory issues or penalties, though the fear of increased scrutiny of China’s internet sector has recently wiped some $200 billion from the value of Chinese tech stocks. It has been rumored that, following a $2.8 billion fine for rival Alibaba, Tencent could face penalty of perhaps $1.5 billion for monopolistic practices.
A subsequent conference call with financial analysts did cover regulatory issued, but only concerning the financial technology sector. Here, Tencent management promised to be prudent and conservative, especially on lending.
In the absence of anything more alarming, Tencent reported upward business-as-usual trends. The Weixin/WeChat social media ecosystem expanded by 3% to 1.24 billion users. Subscriptions to value added services increased by 14% across video, music streaming and other products. That points to the company being able to hold on to gains made early last year when lockdowns and work-from-home conditions artificially favored digital services.
Tencent said that it now has 125 million subscribers for its streaming video services, an increase of 12% year-on-year. Although like for like comparisons of subscription numbers can be tricky, that points to clear daylight between Tencent Video and nearest rival iQIYI, which earlier this week reported 105 million subscribers (excluding trials). Tencent previously announced that it is “merging the Tencent Video and (short-form) WeiShi teams to upgrade their algorithmic recommendations, bring integrated viewing experiences to users, and enrich short video clips adapted from (the) long form video library.”
Games revenues grew by 17% to RMB43.6 billion ($6.76 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.”
Tencent said that the Chinese internet as a whole is now in a heavy investment phase. The company said that it will increase its rate of investment with the aim of delivering high returns in the long run.
The three key areas of investment focus are: business services, short-form video (especially tools that enable users to improve their skills and bridge the gap between user-generated content and professionally-made content), and game development.
In particular Tencent will focus on large-scale and high-production-value games that can appeal to users globally. Chief strategy officer James Mitchell explained that the global audience for games continues to grow, especially in emerging markets, and suggested that gamers are forming longer-term relationships with their favorite games.
Mitchell said that games sector investment will seek to create bigger games, more experimental games, expand games marketing, and apply frontier technologies. He justified this by saying that “PUBG” and “Call of Duty Mobile” have been recent examples of Chinese-developed games that have found a global audience.