Recently, Tencent Holdings (00700.HK) released its financial results for the second quarter of 2024, showing significant growth in various data both year-on-year and quarter-on-quarter. On paper, Tencent's Q2 performance report has many highlights: the revenue for the quarter was 161.1 billion yuan, with an 8% year-on-year increase in revenue, and the net profit attributable to the parent company was 47.6 billion yuan, with a year-on-year growth rate of 82%. Based on this calculation, Tencent's revenue for the first half of this year was 320.6 billion yuan, and the net profit attributable to the parent company was 89.5 billion yuan, second only to the highest record of 90.4 billion yuan in the first half of 2021.
Tencent stated in an interview with journalists that several "budding" businesses such as Video Account, Mini Programs, AI Large Models, and SaaS are thriving, continuously injecting new high-quality revenue into the three main business lines. Driven by large model technology, Tencent's financial technology and enterprise service sector, representing digital and real-world income, reached 50.4 billion yuan in the second quarter, a year-on-year increase of 4%; benefiting from Video Account advertising and AI efficiency improvements, Tencent's advertising revenue in the second quarter was 29.9 billion yuan, a year-on-year increase of 19%; the value-added services sector's revenue for this quarter was 78.8 billion yuan, a year-on-year increase of 6%, benefiting from positive growth in both domestic and overseas game revenue, and several high-quality blockbuster dramas also drove the growth of social network revenue.
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Video Account and AI performance stand out
Pony Ma, Chairman and CEO of Tencent, said that the performance this quarter demonstrated the advantages of the company's platform and content integration strategy. Domestic market game revenue resumed growth, and international market game revenue accelerated growth, thanks to the increased user engagement in several evergreen games and the successful launch of several new games. Tencent Video achieved significant growth in viewers and paying members through self-produced TV dramas adapted from IP by Yuewen. Looking ahead, Tencent will continue to invest in platforms and technologies including AI to create new business value and better serve user needs.
Jiang Han, a senior researcher at Pangu Think Tank, told our reporter: "Regarding Tencent's recently released financial report, I believe, first, Tencent's revenue, gross profit, and operating profit have all achieved significant growth, and the growth rate of gross profit and operating profit has been higher than the revenue growth for seven consecutive quarters, indicating that Tencent's profitability is continuously improving. Second, Tencent's three main business revenues also show a trend of rising together, especially the growth in advertising revenue and value-added services sector revenue, which further proves the diversification and strong development momentum of Tencent's business. Finally, Tencent's investment in R&D continues to increase, which has laid a solid foundation for the company's long-term development."
It is understood that in the second quarter, Tencent's overall gross profit increased by 21% year-on-year, mainly due to the growth of high-profit revenue sources such as domestic game revenue, Video Account advertising revenue, mini-game platform service fees, and e-commerce technology service fees within Video Accounts, as well as cost-saving measures implemented internally.
Within the WeChat ecosystem, the creator ecosystem of Video Account has further prospered, with a significant year-on-year increase in total user usage time, more creators flocking to Video Account and generating revenue; the user time of Mini Programs increased by more than 20% year-on-year, with the monthly active users of mini-games reaching 500 million people, user usage time continued to grow, and the total turnover of mini-games increased by more than 30% year-on-year.
Benefiting from the vigorous growth of Video Account, Mini Programs, Search, etc., Tencent's online advertising sector revenue in the second quarter was 29.9 billion yuan, a year-on-year increase of 19%, and the revenue from mini-game platform service fees also increased.
In terms of AI, Jiang Han believes that, first, Tencent's investment and R&D in AI technology have achieved significant results, such as the launch and continuous upgrade of Tencent's generative AI application Yuanbao, and the improvement of Tencent's Hunyuan large model in performance and application scenarios. Second, Tencent's AI business has been implemented in multiple internal businesses and scenarios, and has achieved positive application effects, which shows Tencent's strength and application potential in the AI field. It is believed that with Tencent's continued investment and exploration in the AI field, its AI business is expected to bring more growth points and competitive advantages to the company.
In the second quarter, Tencent launched the public intelligent assistant Yuanbao, which has launched long-text intensive reading, text-to-image, and image-to-3D functions, and upgraded the deep AI search mode. Backed by Tencent's public account and other unique content ecosystems, its AI content search information is more comprehensive and the content is more accurate.AI large models have also opened up new growth opportunities for business services and other To B operations. In the second quarter, Tencent's Hunyuan large model capabilities were upgraded, with overall performance increasing by 50% compared to the previous generation, placing it at the forefront among domestic foundational large models.
Financial reports indicate that Tencent's R&D expenditure in the second quarter reached 17.277 billion yuan, with a total R&D investment exceeding 302.6 billion yuan over the past six years since 2018.
Gaming Overseas Expansion
In terms of gaming, the second quarter saw a continued recovery and more solid performance in Tencent's domestic market, with several "evergreen games" and "new first-tier games" performing exceptionally well. The mobile game "Dungeon & Fighter: Origin" had a strong launch, contributing to a 9% year-on-year increase in domestic gaming market revenue. Driven by growth in both domestic and overseas markets, Tencent's overall online gaming revenue achieved a 9% year-on-year increase in the second quarter.
The creator ecosystem for mini-games also saw breakthrough development. Over the past year, more than 60 games have reached over a million daily active users (DAU), and more than 240 games have exceeded ten million in quarterly revenue. The mini-game platform has cumulatively served over 400,000 developers, with over 80% being small teams of less than 30 people, becoming a "vast world" for small and medium entrepreneurs.
Based on the robust ecosystem, Tencent's overseas "new shoots" are also continuously sprouting. In the first half of this year, Tencent's gaming and WeChat ecosystem have shown good performance overseas, with international markets becoming a new battleground for several of Tencent's businesses.
Tencent's international gaming market achieved a 9% year-on-year increase in the second quarter, reaching 13.9 billion yuan. With "self-developed overseas expansion" and "overseas studios," Tencent's gaming is deeply rooted in the international market, demonstrating good growth potential.
The top game "Honor of Kings" took an important step in self-developed overseas expansion. In June this year, the international version of "Honor of Kings," "Honor of Kings," was launched in more than 160 countries and regions worldwide, with downloads exceeding 50 million in the first month. According to third-party data, since June this year, the game's download growth has surged to 6.6 times that of May, ranking first in the Southeast Asian market.
Tencent's Supercell studio continues to stand out, with several of its games achieving dual growth in user numbers and revenue. Sensor Tower's data shows that in the first half of this year, "Brawl Stars" overseas revenue increased nearly fourfold to $500 million, exceeding the combined revenue of 2022 and 2023, driving Supercell's overseas revenue up by 70%. In the global game publishers' overseas revenue ranking, Supercell rose from eighth to fourth place. The new game "Clash Squad" also showed a "dark horse" momentum. According to official data, the game earned $1.1 million in revenue on its first day and quickly exceeded 30 million downloads, making it the most successful game released by Supercell to date. Sensor Tower's statistics show that "Clash Squad" has earned more than $50 million in total revenue since its launch.
Jiang Han believes that Tencent's next layout and planning should first continue to increase investment and R&D in the AI field to consolidate and expand its leading position in AI. Secondly, Tencent can further expand its overseas business, especially in cloud computing, gaming, and payment areas, to seize the development opportunities in overseas markets. Finally, Tencent can continue to deepen the layout of its WeChat ecosystem, enriching the application scenarios and user experience of the WeChat ecosystem through innovative businesses such as video accounts and mini-programs, thereby promoting the continuous development of the company's overall business.
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