Sunday , September 15 2019
Home / israel / Play, WeChat you pay to manage your profits

Play, WeChat you pay to manage your profits

Tencent Headquarters in Shenzhen, China, pictured in August 2016

Bloomberg | Get the picture

Tencent reported second-quarter earnings on Wednesday, and the market expects the company's core gaming business and its financial technology division to witness strong revenue growth.

The Chinese giant is forecasting the following quarterly results in June:

  • 93.42 billion yuan ($ 11.9 billion) in revenue, according to calculations by Refinitiv. If implemented, it would represent nearly 27% annually.
  • Profit attributable to shareholders of 20.74 billion yuan ($ 2.64 billion), according to estimates by Refinitiv. That would be about 16% growth if it were hit.

Tencent trouble

In the three months to the end of March, Tencent registered its slowest quarterly sales growth since it went public in 2004.

This was because the Chinese government suspended approvals for the game last year. In order to be released and monetized in China, video games must be approved by regulators. That hurt Tencent's business, which relies heavily on nearly 41% in the first quarter, for online gaming revenue.

Billions of dollars were deleted from stocks in 2018. China began approving games again earlier this year and a number of Tencent titles were given the green light. The company's shares have undergone a slight revival and are up 6% so far this year.

Meanwhile, analysts maintain confidence in Tencent. The average price for the 12 months of the stock is $ 428.46, according to Reuters. That represents more than 28% up from Tuesday's close and a market cap of $ 521.7 billion. If Tencent's estimate rises above $ 500 billion, it will be the first time since March 2018.

Game revival

Following the withdrawal of approval for the game, Tencent was able to release titles such as "Peacekeeper Elite," also known as "Peace Game." It's a similar game to PlayerUnknown's Battlegrounds Mobile, a game that Tencent co-develops but never gets approved to monetize. Tencent pulled this game out of China, replaced it with "Play for Peace" and migrated users.

The game raised $ 14 million in its first three days of availability in China, according to Sensor Tower. There are other indications that Tencent's gaming business is looking up: The Chinese giant was the largest mobile gaming publisher worldwide in July, Sensor Tower data shows.

Nomura said in a recent note that he expects online gaming revenue to grow by 10% year-on-year, driven mainly by a 30% increase in mobile gaming revenue, representing 68% of the company's total online gaming revenue.

New business

Although gaming is still the biggest revenue driver for Tencent, it appears to be diversifying into areas including financial technology and cloud computing.

For the first time in March, Tencent first listed its fintech and business services division numbers. This included revenue from payments through WeChat Pay and other financial services products such as microcredit. It also included revenue from cloud computing. This division represents more than 25% of first quarter revenue, making it the second largest business for Tencent.

The WeChat Pay platform, which is integrated into the WeChat messaging app, is looking to make it more profitable, according to analysts.

"We learned from contacts in our industry that Tencent's WeChat Pay has stepped up its efforts to improve profitability by gradually eliminating / reducing subsidies," Nomura said in a recent note.

Tencent pays subsidies to some merchants to use the WeChat Pay platform to increase their market share.

WeChat also has a social media feature called Moments. Tencent is slowly increasing the number of ads users see on this feed.

Tencent's other business units include content and video streaming, as well as advertising. This combination of revenue streams and company pressure to diversify is one of the reasons analysts are bullish.

"Taking advantage of its synergistic social ecosystem, Tencent's diverse streams from gaming to advertising and Fintech and business services showcase their strong capabilities," Jeffries said in a note earlier this month.


The main wind for Tencent is the broader business environment influenced by the US-China trade war. Neal Campling, head of technology, media and telecommunications research at Mirabaud Securities, called Tencent's shares a "risk proxy" as the "largest and most liquid" stock in emerging markets. It became clear that his shares were caught in part of the sales pressure he was putting on Chinese stocks.

Another slowdown is the slowdown in the Chinese advertising market. Expenses for digital ads in the world's second-largest economy are expected to reach $ 79.82 billion in 2019, an increase of 22% over the previous year, according to eMarketer. This is a 28% growth slowdown last year.

This, combined with tighter controls for online content, can be a problem for Tencent.

"In addition to the persistent macro impacts, we expect Tencent's video ad service, a large component of media ads, also suffered from tightening content regulation, which delayed the broadcasting of some popular video content and consequently disrupted video ads. business, "Nomura said.

<! – ->

Source link