Shulou(Shulou.com)11/24 Report--

On November 16, Tencent released its results for the third quarter of 2022. Although revenue has declined year-on-year for two consecutive quarters, net profit is finally back on track, growing by 2 per cent year-on-year under non-IFRS.

In that quarter, under the strict minor protection and version number policy, Tencent's game revenue still declined compared with the same period last year, and the length of minor games decreased significantly compared with the same period last year; at the same time, financial technology and enterprise services grew by 4% year-on-year in the quarter, surpassing games as Tencent's largest source of revenue after the fourth quarter of 2021.

Reduce cost and increase profit and return to the growth track

According to the financial report, Tencent achieved operating income of 140.1 billion yuan in the third quarter, which was still down 2% from the same period last year, but rebounded from the previous year; net profit was 39.94 billion yuan, up 1% from the same period last year; and under non-international financial reporting standards, net profit was 32.25 billion yuan, an increase of 2% over the same period last year. It is worth noting that this is the first time that Tencent has seen a positive profit growth since the third quarter of 2021.

Ma Huateng, chairman and CEO of Tencent, said: "in the third quarter, our adjustments to the new industry paradigm are beginning to bear fruit. We launched information flow advertising in the video number, made a breakthrough in the distribution of international games, and through cost reduction and efficiency measures to refocus on the core business and effectively control cost growth. As a result, our non-IFRS earnings have returned to year-on-year growth after four quarters of decline.

In March this year, Tencent mentioned "reducing costs and increasing efficiency" for the first time in its 2021 annual report, and said it would "actively adapt to the new environment, reduce costs and increase efficiency, focus on key strategic areas, and strive for long-term sustainable growth."

In the third quarter of this year, Tencent's revenue costs fell 2 per cent year-on-year to 78.1 billion yuan, according to the financial report. Specifically, the revenue cost of value-added services fell 1% to 35.1 billion yuan compared with the same period last year, while the cost of online advertising business dropped 5% to 11.5 billion yuan in this quarter. The revenue cost of financial technology and enterprise services decreased by 3% to 29.9 billion yuan compared with the same period last year, mainly due to the corresponding reduction in the deployment cost of cloud projects after the company took the initiative to reduce loss-making projects. as well as the implementation of cost-reduction and efficiency measures to reduce server and bandwidth costs related to enterprise services.

In addition, Tencent strictly controlled spending on marketing activities, slashing sales and marketing spending in the quarter, down 32 per cent from a year earlier to 7.1 billion yuan. As a percentage of income, this portion of expenditure fell to 5% from 7% in the same period last year.

In terms of personnel, there have been recent media reports that Tencent has launched a new round of layoffs involving three of its six business units-platform and content Business Group (PCG), including video and news platforms, game-focused Interactive Entertainment Group (IEG) and Cloud and Intelligent Industry Business Group (CSIG).

As of September 30, 2022, Tencent had 108836 employees, up from 107348 in the same period in 2021, but compared with 110715 employees on June 30, 2022, in the previous quarter, according to the financial report. Tencent lost 1879 employees in the third quarter of this year.

The income of ToB business surpasses that of game Tencent mainly comes from value-added services, online advertising, financial technology and corporate services, among which value-added services include games and social networks.

According to the third-quarter results, financial technology and corporate services currently account for 32% of revenue, games account for 31%, social networks account for 21%, and online advertising accounts for 15%. Financial technology and corporate service income surpassed games to become the largest source of income.

In the first quarter of 2019, Tencent began to list financial technology and enterprise services as a major revenue segment to disclose separately; as Tencent increased its investment in the industrial Internet, the financial technology and enterprise services business surpassed the game business for the first time in the fourth quarter of 2021. Tencent's largest source of revenue; in the third quarter of this year, the revenue scale of this business once again surpassed that of games.

Specifically, the revenue of the financial technology and corporate services business in the third quarter was 44.8 billion yuan, up 4% from the same period last year. Tencent disclosed in its financial report that in terms of financial technology, with the significant growth in groceries, catering services and transportation, commercial payments recorded double-digit year-on-year growth in the third quarter; in cloud and other corporate services, as a result of reducing loss-making projects and focusing on self-developed products, revenue decreased slightly compared with the same period last year, but gross profit increased significantly compared with the same period last year. Help the non-Internet industry to embrace the digital transformation, especially in the past where the development model focused on offline industries, the proportion of related income increased.

On the other hand, the game business as a whole is still in a state of declining revenue. Of this total, game revenue in the local market was 31.2 billion yuan, down 7% from the same period last year, while game revenue in the international market was 11.7 billion yuan, up 3% from the same period last year.

Tencent disclosed that it has implemented a minor protection plan and has fully met the requirements of Chinese laws and regulations. In July 2022, the number of game hours played by minors decreased by 92% compared with the same period last year, and minors accounted for 0.7% of the game hours in the local market.

In a conference call, Tencent executives said that in the domestic game market, there are indeed adverse headwind factors. The policies on the protection of minors and version numbers are very strict, and the current macro environment is full of challenges, but industry supervision is necessary. Business adjustment is needed to meet regulatory requirements. " The problem of version number will always be solved. In September, some games won the version number. If the future game business has a version number issued, there will be new growth, and the headwind factors of the game industry will be alleviated. "

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