Tencent Revenue up 7% to $21.5 bn Despite 3% Drop in Gaming Sales

Tencent Holdings, a leading technology company, has reported 7 percent increase in revenue to 155.19 billion yuan ($21.56 billion) in Q4 2023, as it faced drop in gaming revenue.
Tencent WeChatVAS represented 45 percent of its revenue, within which the social network segment was 18 percent, domestic games was 18 percent, and international games 9 percent. Online advertising was 19 percent of its revenue, and fintech and business services represents 35 percent.

Tencent reported 3 percent decrease in gaming revenue within China, while international gaming revenue saw 1 percent increase. Tencent’s core gaming business faced headwinds in the wake of reduced spending from avid gamers, who had already made significant purchases in the prior year’s first quarter when COVID-19 restrictions were lifted in China.

Tencent President Martin Lau acknowledged the softening gaming revenue trend and indicated that the company anticipates a similarly subdued performance in the first quarter of the current fiscal year.

Martin Lau, however, remained optimistic about Tencent’s prospects, highlighting a pipeline of new gaming releases, notably the upcoming launch of “Dungeon & Fighter Mobile,” expected to bolster domestic revenue.

Despite the revenue shortfall, Tencent marked a year of recovery with a 10 percent increase in revenue for the full year, reaching 609 billion yuan. This rebound follows a challenging period marked by Beijing’s regulatory crackdown on the technology sector, which led to Tencent’s first annual revenue decline in 2022, Reuters news report said.

Tencent’s revenue diversification strategy yielded positive results, with notable growth in online advertising revenue, which surged by 21 percent to 29.8 billion yuan. Additionally, revenue from fintech and business services expanded by 15 percent to 54.5 billion yuan in 2023.

IN DETAIL

Tencent Video and Tencent Music continued to dominate their respective industries with 117 million and 107 million paid subscribers, reaffirming their leadership positions.

Moreover, Tencent’s enterprise software offerings, including WeCom and Tencent Meeting, witnessed strengthened market presence and increased monetization efforts, contributing to the company’s overall success.

Additionally, significant strides in technology were highlighted, particularly with the Tencent Hunyuan foundation model, which now stands among the top-tier large language models in China, boasting advanced capabilities in logical reasoning.

Tencent aims to leverage its AI capabilities to drive innovation across its business segments, particularly in advertising and productivity tools. Lau underscored the company’s commitment to advancing AI-driven solutions, with a particular focus on enhancing text-to-image and text-to-video capabilities, mirroring advancements seen in models like OpenAI’s Sora.

The Weixin platform, a cornerstone of Tencent’s ecosystem, demonstrated consistent growth in both daily active users (DAU) and daily time spent per user. This growth was attributed to the introduction of new services within Weixin such as video accounts, mini games, and Weixin Search, which not only enhanced user engagement but also generated additional revenue streams with high margins.

Within Weixin, video accounts witnessed a remarkable surge in user engagement, with total user time spent more than doubling in 2023. This translated into substantial advertising revenue growth despite maintaining lower ad load levels compared to industry peers, prioritizing a superior user experience.

Similarly, mini games experienced a 50 percent increase in gross receipts, benefiting from a growing user base and higher revenue per user, further bolstering Tencent’s revenue through platform fees.

Furthermore, Weixin Search recorded significant milestones, surpassing 100 million DAU with content queries growing over 30 percent year-on-year, leading to substantial revenue growth from monetization efforts.

Tencent acknowledged challenges in its domestic game business revenue during 2023, particularly with flagship titles such as Honor of Kings and Peacekeeper Elite experiencing stagnation in monetization. To address this, Tencent outlined strategies including creative monetization approaches and a more evenly distributed monetization strategy for 2024, aiming for sustained revenue growth.

Despite these challenges, Tencent highlighted successes in its game portfolio, with several recent releases performing well in terms of DAU and monetization. Notable titles include “Fight of the Golden Spatula” and “LoL Wild Rift,” underscoring Tencent’s ability to develop and operate popular games simultaneously.

In addition to gaming, Tencent emphasized advancements in core technologies, particularly in AI, with the deployment of leading-edge technologies like the Mixture of Experts (MoE) architecture enhancing the performance of its foundation model, Tencent Hunyuan. These advancements enable Tencent to offer improved services across its enterprise software products while exploring new AI tools for content production internally.

Baburajan Kizhakedath

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