Tencent: 2Q20 revenue was 114.883 billion yuan, a year-on-year increase of 29%

On August 12, 2020, Tencent Holdings Limited (“Tencent” or the “Company”, Hong Kong Stock Exchange stock code: 00700), a leading Internet value-added service provider in China, today announced its unaudited consolidated results for the second quarter and first half of 2020 ended June 30, 2020.

2020 Half Year Results Highlights

Total revenue: up 28% year-on-year; profit attributable to equity holders of the Company based on non-IFRS standards: up 29% year-on-year

Total revenue was RMB222,948 million (US$31,492 million), an increase of 28% from the first half of 2019 (“year-over-year”).

On a non-IFRS basis, excluding the impact of certain one-off and/or non-cash items, to reflect the performance of the core business:

– Operating profit was RMB73.204 billion (US$10.34 billion), up 31% year-on-year; operating profit margin increased to 33% from 32% in the same period last year.

– Profits for the period were RMB59.204 billion (US$8.363 billion), up 29% year-on-year; net profit margin increased to 27% from 26% in the same period last year.

– Profit attributable to equity holders of the Company for the period was RMB57,232 million (US$8,084 million), an increase of 29% year-on-year.

– Basic earnings per share were RMB6.038 and diluted earnings per share were RMB5.945.

According to International Financial Reporting Standards:

– Operating profit was RMB76,571 million (US$10,816 million), up 19% year-on-year; operating profit margin decreased to 34% from 37% in the same period last year.

– Profits for the period were RMB61.857 billion (US$8.737 billion), up 18% year-on-year; net profit margin decreased to 28% from 30% in the same period last year.

– Profit attributable to equity holders of the Company for the period was RMB62,003 million (US$8,758 million), an increase of 21% year-on-year.

– Basic earnings per share were RMB6.541 and diluted earnings per share were RMB6.440.

? Total cash at the end of the period was RMB 281.086 billion (US$39.704 billion)

Second Quarter 2020 Results Highlights

Total revenue: up 29% year-on-year, profit attributable to equity holders of the Company based on non-IFRS standards: up 28% year-on-year

Total revenue was RMB114,883 million (US$16,228 million), an increase of 29% from the second quarter of 2019 ("year-over-year").

On a non-IFRS basis, excluding the impact of certain one-off and/or non-cash items, to reflect the performance of the core business:

– Operating profit was RMB37,629 million (US$5,315 million), up 38% year-on-year; operating profit margin increased to 33% from 31% in the same period last year.

– Profits for the period were RMB31.22 billion (US$4.41 billion), up 29% year-on-year; net profit margin was 27%, the same as the same period last year.

– Profit attributable to equity holders of the Company for the period was RMB30.153 billion (US$4.259 billion), an increase of 28% year-on-year.

– Basic earnings per share were RMB3.180 and diluted earnings per share were RMB3.130.

According to International Financial Reporting Standards:

– Operating profit was RMB39,311 million (US$5,553 million), up 43% year-on-year; operating profit margin increased to 34% from 31% in the same period last year.

– Profits for the period were RMB32.454 billion (US$4.584 billion), up 31% year-on-year; net profit margin was 28%, the same as the same period last year.

– Profit attributable to equity holders of the Company for the period was RMB33,107 million (US$4,676 million), an increase of 37% year-on-year.

– Basic earnings per share were RMB3.491 and diluted earnings per share were RMB3.437.

Ma Huateng, Chairman and CEO of NetEase, said: "Since the beginning of the year, the COVID-19 pandemic has swept the world, affecting people's daily work and life patterns. During this challenging time, we have used our platform and technology to help users adapt to the new normal through online tools, support the digital upgrade of enterprises, and broadly contribute to economic recovery. In the second quarter, our overall operating and financial performance remained strong, reflecting the perseverance of our team and the resilience of our business model. We will continue to make efficient investments in talent, technology and platforms, embrace emerging structural opportunities, and meet future challenges."

Financial Analysis for the Second Quarter of 2020

Revenue from value-added services increased 35% year-over-year to RMB65,002 million. Online game revenue increased 40% to RMB38,288 million. The growth was primarily driven by increased revenue from domestic games, including Game for Peace and Honor of Kings, and smartphone games in overseas markets, partially offset by decreased revenue from PC client games, such as Dungeon Fighter and CrossFire. In the second quarter of 2020, total smartphone game revenue (including smartphone game revenue attributable to our social networking business) and PC client game revenue were RMB35,988 million and RMB10,912 million, respectively. Social networking revenue increased 29% to RMB26,714 million. The growth was primarily driven by contributions from digital content services, including the live streaming services of HUYA Inc. ("Huya", consolidated as a subsidiary since April 2020), growth in music memberships, and growth in revenue from sales of virtual game props.

Revenue from the financial technology and enterprise services business increased by 30% year-on-year to RMB29.862 billion. This growth mainly reflects the growth of commercial payment revenue due to the increase in average daily transaction volume and single transaction amount, the growth of wealth management platform revenue, and the growth of cloud service revenue due to the increase in public cloud consumption (especially Internet services and people's livelihood services).

Revenue from online advertising business increased by 13% year-on-year to RMB 18.552 billion. Revenue from social and other advertising increased by 27% to RMB 15.262 billion. The growth was mainly due to the increase in traffic and the increase in the proportion of higher-priced video ads, which drove the growth of mobile advertising alliance revenue, and also benefited from the increase in revenue driven by the increase in advertising inventory and exposure in WeChat Moments. Media advertising revenue decreased by 25% to RMB 3.290 billion. The decrease mainly reflects the weak demand for brand advertising in the challenging macro environment, and the delay in the production and launch of some content, which led to a decline in advertising revenue for Tencent Video.

Other key financial information for the second quarter of 2020

EBITDA was RMB40.525 billion, up 24% year-on-year. Adjusted EBITDA was RMB43.742 billion, up 25% year-on-year.

Capital expenditure was RMB 9.466 billion, an increase of 117% year-on-year.

Free cash flow* was RMB28.451 billion, up 127% year-on-year.

As of June 30, 2020, the Company had net cash of RMB7,212 million. The fair value of our interests in listed investee companies (excluding subsidiaries) totaled RMB726,244 million.

Business data

Business Review and Outlook

Since the beginning of the year, the novel coronavirus epidemic has swept the world, affecting people's daily work and life. During this challenging time, we use our platform and technology to help users adapt to the new normal through online tools, support the digital upgrade of enterprises, and widely promote economic recovery. The following are the key performances of our main products and businesses:

Communications and social

On WeChat, we released version updates to enhance its functions in communication, content and services. On the communication level, the latest "pat it" function inspired many creative interactions, and the new live broadcast function in WeChat parent-school groups also made online education through WeChat more convenient. The number of monthly active accounts and the average number of daily messages both increased year-on-year. On the content side, we upgraded the video content publishing function of official accounts, strengthened the recommendation algorithm, and launched content aggregation tools to improve the efficiency of users' content discovery. These measures have revitalized content consumption on official accounts and driven year-on-year growth in page views. On the service side, we helped traditional retailers with digital transformation and assisted them in resuming business through mini programs. As economic activities recovered, the transaction volume generated through mini programs rebounded month-on-month. We launched a free and easy-to-use mini program function "small store" to help long-tail merchants build and operate online stores, providing merchants with multiple capabilities such as order management, after-sales service and live broadcasting.

In QQ, we added features that allow users to better interact online when they are unable to meet up with friends and family. Users can start online parties and play AI-powered social games with friends in video chats. To further attract the growing fan base of the two-dimensional culture ("ACGN"), we launched customized comic emoticons for use in QQ chats and enriched the content of two-dimensional related mini-programs, which are very popular among young users.

Online Games

In China, user time spent on smartphone games increased year-on-year, but decreased month-on-month due to seasonality and resumption of work. Honor of Kings released multiple top skins during its anniversary event, the "May 5th Black Festival", which increased user activity. Game for Peace enhanced players' competitive gaming experience with new content and game modes during its first anniversary. In addition, we partnered with Tesla to launch Tesla car skins in Game for Peace in July, which was well received by players. In the second quarter, we launched the strategy game Warsong Arena, the action game based on the popular Chinese comic IP Under One Person, and Supercell's Brawl Stars in China. Brawl Stars topped the iOS China download rankings in June this year, further continuing its global leadership in the fast-paced 3v3 MOBA genre.

In the international market, our monthly active accounts increased significantly year-on-year and quarter-on-quarter due to the launch of new games and the increase in user time during the stay-at-home order. We released an immersive team-based action PC game "Valorant", a card game "Legends of Runeterra" across PC and smartphones, and the agent role-playing mobile game "CODE:D Blood". Valorant has become the most watched game on Twitch worldwide in the second quarter, reflecting the game's immediate appeal to players who love immersive action games.

Digital Content

Our paid VAS accounts grew 20% year-over-year to 203 million, driven primarily by growth in video and music content service memberships. Video service memberships grew 18% year-over-year to 114 million, driven by our own Chinese anime and TV series such as Douluo Dalu Season 3, The Cave of Dragon Ridge, and The Legend of Chen Qianqian. Traffic to China’s long-form video sites, including Tencent Video, declined sequentially as people gradually returned to work and several popular variety shows and TV series were delayed. Tencent Video traffic has risen since the end of Season 2, driven by hit dramas such as Nothing But Thirty, reflecting the resilience of our video platform. Tencent Music expanded its paid music library, with music service memberships growing 52% year-over-year to 47 million.

Online Advertising

The continued strength of social and other advertising businesses drove year-on-year growth in online advertising revenue. The quarter-on-quarter growth rate of online advertising revenue slowed down compared to the quarter-on-quarter growth rate in the previous period because in the first quarter of 2020, the gaming and Internet service industries benefited from working from home and significantly increased advertising spending, but entered the second quarter, their advertising spending fell back to a more normal level. However, in the second quarter of 2020, our advertisers became more diversified, with e-commerce and education industry advertisers heavily promoting 618 promotions and summer courses, and advertisers such as automobile and consumer electronics brands also increased advertising spending as consumption recovered.

In order to strengthen our long-term competitiveness in the performance advertising field, we launched an integrated advertising management platform in July, which allows advertisers to more efficiently place advertisements on all Tencent resources, including our mobile advertising alliance. The new platform will also enhance bidding efficiency and provide advertisers with more accurate targeted delivery services.

In terms of social and other advertising, WeChat advertising resources (especially Moments) have driven rapid growth in advertising exposure, and the eCPM of the mobile advertising alliance has also increased, as the proportion of video advertising in the mobile advertising alliance revenue has increased from a single-digit percentage in the second quarter of 2019 to more than 40% in the second quarter of 2020. We believe that the WeChat ecosystem is redefining online advertising in China, allowing advertisers to build relationships with users in their private domains, such as official accounts and mini-programs, so that their advertising can effectively maintain long-term and loyal customer relationships, rather than just one-time advertising transactions.

In terms of media advertising, revenue fell sharply year-on-year due to weak demand from brand advertisers and the delay in the production and broadcast of some variety shows and TV series. We expect that some variety shows and TV series will be broadcast in the second half of 2020.

Fintech

The business of commercial payment and wealth management platform has increased in both users and business scale, driving the year-on-year and quarter-on-quarter growth of financial technology revenue. As offline merchants (especially small and medium-sized enterprises) accelerate access to our payment services and merchant management tools to reach customers and complete transactions through mobile phones, digital upgrades have been achieved. In this quarter, merchants' demand for our payment solutions has increased, especially in industries such as retail and catering. As a result, our average daily transaction volume and single transaction amount in commercial payments have increased year-on-year.

In terms of the wealth management platform business, as more and more users recognize the convenience of our safe and carefully aggregated wealth management platform, the asset holdings and active customer base have increased year-on-year.

Cloud and other enterprise services

Cloud and other enterprise services revenues recorded year-on-year and quarter-on-quarter growth, mainly driven by the increase in cloud service usage by Internet companies and public service customers. Under the continued impact of the new coronavirus epidemic, the delivery of offline projects has not yet fully resumed in the second quarter, but we have signed major contracts with financial institutions and public service customers, and expanded our business in emerging verticals such as healthcare, education, conferences and exhibitions to help customers achieve digital transformation. In terms of technology and infrastructure, we use customized equipment, as well as build and expand our own hyperscale data centers, which will help improve the performance of our cloud services and optimize costs in the long run.

via Futu NiuNiu