Tencent Posts Q2 Earnings Surprises with 82% Rise, Driven by Gaming Recovery

TMTPost -- Tencent Holdings Ltd. posted much stronger-than-expected top and bottom line from April to June as recovery of its core gaming business accelerates.

Credit：Tencent

Tencent reported revenue of RMB161.12 billion (US$22.6 billion based on USD1 to RMB7.1268) for the quarter ended June 30 2024, just shy of Wall Street estimates of RMB161.35 billion. The revenue represented a year-over-year (YoY) of 8%, faster than a 6% increase three months ago. On an IFRS basis, the profit attributable to equity holders of the company soared 82% YoY to RMB47.63 billion, way more than analysts expected RMB39.94 billion, and diluted earnings per share (EPS) were RMB4.994 with a 85% YoY increase. The profit logged a 54% YoY rise in the previous quarter. Operating profit was RMB50.7 billion, up 40% YoY, following a 38% YoY increase in the previous quarter. On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items, the profit rose 53% YoY to RMB57.31 billion, compared with the projection of RMB48.67 billion.

As the world』s largest video game company, Tencent resumed positive revenue growth of gaming business after suffering its first ever annual revenue decline in 2022 in the beginning quarter of this year.VAS (value-added services), including game and social network business, generated RMB78.8 billion with a 6% YoY increase after falling 0.9% YoY in the March quarter. International Games gross receipts were RMB13.9 billion, up 9% YoY, primarily driven by a strong performance from PUBG Mobile and enhanced popularity for Supercell』s games. Gross receipts for International Games grew at a substantially faster rate than revenues. Domestic Games revenues resumed year-on-year growth, up by 9% to RMB34.6 billion, driven by increased revenue from Valorant and the successful launch of Dungeon & Fighter Mobile (DnF Mobile). Gross receipts growth for Domestic Games outpaced revenue growth. Social Networks revenues were RMB30.3 billion, up 2% YoY, supported by growth in music and long-form video subscription revenues, Mini Games platform service fees and app-based game virtual item sales, partially offset by a decline in music-related and games-related live streaming revenues.

Tencent said it revitalised its flagship Domestic Games, Honour of Kings and Peacekeeper Elite, which each resumed postive YoY growth of gross receipts in the second quarter. Naruto Mobile reached a new milestone of 10 million monthly average daily active user (DAU) in May. DnF Mobile, a newly released game produced by South Krorean firm Nexon, reactivated millions of IP fans and is retaining players well, positioning it to become Tencent』s next evergreen major hit.

Revenue from online advertising were RMB29.9 billion for the second quarter, up 19% YoY,  compared with a 26% YoY increase in the previous quarter. The growth was primarily driven by increased revenues from Video Accounts and long-form video. Revenue from the mobile ad network declined YoY, due to reduced advertising budgets from certain Internet services companies.

Revenues from FinTech and Business Services increased by 4% year-on-year to RMB50.4 billion for the second quarter. FinTech Services revenue growth decelerated to a low single-digit percentage rate, impacted by further moderation in commercial payment revenue growth that reflected slow consumption spending, alongside a decline in consumer loan services revenue due to stronger risk control measures, while wealth management services revenues experienced double-digit percentage growth. Business Services revenues achieved a teens growth rate, driven by a rise in cloud services revenues, which included improved monetisation of WeCom, as well as higher eCommerce technology service fees within Video Accounts.

Tencent executives sounded a note of caution about the cyclical nature of the industry and increasingly innovative competitors. 「The traction is quite nice. But let』s not lose sight of the fact that we』ve seen a very challenging business environment in the past couple of years,」 President Martin Lau told analysts in a briefing at an earnings call. 「That』s the nature of the gaming business. It』s increasingly difficult to come out with very successful new titles these days, because the quality and expectations for games is very high.」