Tencent 2022 Fourth Quarter

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Tencent Holdings Limited (00700.HK), a leading provider of value-added Internet services in China, reports total revenue was RMB 145 billion, an increase of 0.5% y-o-y over the fourth quarter of 2021. Capital Expenditures were RMB5.7 billion down 52% y-o-y and free cash flow was RMB 23.1 billion, down 31% y-o-y.

On a non-IFRS basis, excluding one-time and non-cash items, the operating profit was RMB39.4 billion, an increase of 19% y-o-y. The operating margin increased to 27% from 23% last year. Profit for the period was RMB 30.6 billion which is an increase of 19% y-o-y. Net margin increased to 21% from 18% compared to last year. Total cash is RMB 319.6 billion at the end of the period.

Total revenues were RMB 554.6 billion which sees a decrease of 1% over 2021. On a non-IFRS basis, the core earnings excluding one-time and non-cash items show operating profit was RMB 153.5 billion which is a decrease of 4% y-o-y, operating margin was stable at 28%. Profit for the year was RMB 119.2 billion which is a decrease of 7% y-o-y. Net margin decreased by 21% from 23% last year. Profit attributable to equity holders of the Company for the year was RMB 115.6 billion which is a decrease of 7% y-o-y.

Revenues from VAS decreased by 2% to RMB 70.4 billion for the fourth quarter of 2022 on a y-o-y basis. International Games revenues increased by 5% to RMB 13.9 billion, up 11% excluding currency impact. Revenue growth was driven by key franchises VALORANT and League of Legends. The new launches of GODDESS OF VICTORY: NIKKE and Warhammer 40,000: Darktide helps to drive revenue growth. Domestic Games revenues decreased by 6% to RMB 27.9 billion due to y-o-y lower gross cash receipts in the previous quarters. Social Networks revenues decreased by 2% to RMB 28.6 billion, reflecting decreased revenues from music and games-related live streaming services, versus increased revenues from Video Accounts live streaming services and music subscription services.

Revenues from Online Advertising increased by 15% to RMB 24.7 billion for the fourth quarter of 2022 on a y-o-y basis. Ad spending from eCommerce platforms, FMCG, and games advertisers increased notably y-o-y. Social and Others Advertising revenues increased by 17% to RMB 21.4 billion, underpinned by robust demand for Video Accounts and Mini Programs ads, as well as recovery of mobile ad network. Media Advertising revenues increased by 4% to RMB3.3 billion which shows increased monetization for ad-supported music content.

Revenues from FinTech and Business Services decreased by 1% y-o-y basis to RMB47.2 billion for the fourth quarter of 2022. FinTech Services revenue growth was slower than the previous quarter due to COVID-19 outbreaks. Business Services revenues decreased y-o-y as it scaled back loss-making activities.

Business Strategies

The total time spent on Weixin continued to increase throughout 2022 in both chat and non-chat use cases. Time spent on Moments was stable y-o-y in the fourth quarter of 2022. Time spent on Mini Programs and Video Accounts doubled and tripled y-o-y. Mini Programs generate several trillions of renminbi of transaction value in 2022. For QQ, the user interface is further enhanced by adding Super QQ Show avatars and utilizing motion capture technology to mirror users’ facial expressions and gestures in real-time. It improves the anime, comics, and game content for Mini World, the short-video service within QQ, and launched AI-powered creation tools, increasing DAU and time spent per user.

Fee-based VAS subscriptions decreased by 1% year-on-year to 234 million. Video subscription revenue increased as pricing increased. Subscriptions dropped to 119 million because of content scheduling delays. For music, membership privileges were offered and user engagement in music genres is improved. There is growth in paying users and ARPU.

It sees improvement in its revenue growth in the fourth quarter of 2022 as more inventory on services including Video Accounts and advertiser demand improved. It strengthens the transaction-driven capability of the advertising ecosystem, with click-to-message and click-to-purchase advertisements accounting for over one-third of Weixin’s advertising revenue in the fourth quarter of 2022. Machine-learning infrastructure helps to increase conversion rates and ROI for advertisers.

It is investing in AI capabilities and cloud infrastructure to embrace foundation models. This will improve the user experience in existing services and introduce new products.

Refer here for previous Tencent earnings.

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