Tencent, the Chinese tech giant, managed to surpass analyst estimates for revenue and profit in the first quarter. The company’s core gaming business saw slightly better sales, while its advertising and business services division showed improved profitability. Tencent’s revenue reached 159.5 billion Chinese yuan, exceeding the expected 158.4 billion yuan. Profit attributable to equity holders of the company also outperformed expectations, coming in at 41.9 billion yuan compared to the anticipated 36.64 billion yuan.
Tencent’s adjusted net profit soared by 62% year-on-year, marking the fastest growth since the March quarter of 2021. The company’s revenue also experienced a healthy increase of 6% year-on-year. This growth is particularly noteworthy as Tencent had faced its first annual revenue decline in 2022. To counter this, the company initiated a cost-cutting drive and exited non-core businesses to focus on its core gaming division, advertising, and cloud computing. Investors have shown confidence in Tencent’s strategy, with shares rising by 30% this year.
Performance of China Gaming Business
Despite challenges, Tencent managed to minimize the decline in revenue from its China gaming business in the first quarter. There was a 2% year-on-year decrease, an improvement from the 3% fall in the previous quarter. While revenue from “Honour of Kings” dropped against a high base during Chinese New Year, Tencent faced weak monetizable content from “Peacekeeper Elite.” On the international front, revenue from games rose by 3% year-on-year, driven by the popularity of PUBG Mobile and games from Supercell.
Tencent’s online advertising division saw significant growth, with revenue escalating by 26% year-on-year. This was attributed to increased engagement on WeChat and enhancements in the company’s AI-powered advertising infrastructure. Gross profit for the advertising business soared by 66% year-on-year. The fintech and business services unit, encompassing WeChat Pay and cloud computing, also performed well with a 7% year-on-year revenue increase. Gross profit for this segment surged by 42% year-on-year.
In its earnings release, Tencent highlighted the improvement in games gross receipts due to team reorganizations, laying the foundation for future growth in games revenue. The company continues to focus on cultivating high-quality revenue streams, including advertising, Mini Games platform service fees, and eCommerce technology service fees. Tencent remains optimistic about the growth potential of its various business divisions and is committed to driving continued success in the coming quarters.