Tencent's Q2 revenue increased by 8% year-on-year, with a net profit soaring by 82%, far exceeding expectations! Domestic games resume growth | Financial Report Insights

With a strong rebound in the gaming business, Tencent delivered a very impressive report card in the second quarter: both revenue and net profit accelerated, with a year-on-year net profit growth rate exceeding 80%. In the second quarter, Tencent's domestic gaming business reversed its previous sluggish trend, while the international gaming business also achieved accelerated growth.

On August 14th, Tencent Holdings announced its second-quarter financial report for 2024.

1) Key Financial Data:

Revenue: The company's second-quarter revenue increased by 8% year-on-year to RMB 161.12 billion (6% year-on-year growth in the first quarter), slightly below the market's expected RMB 161.35 billion.

Profit: Gross profit increased by 21% year-on-year to RMB 85.9 billion; operating profit increased by 40% year-on-year to RMB 50.7 billion, slightly below the expected RMB 51.46 billion.

Net profit increased by 82% year-on-year to RMB 47.63 billion, significantly exceeding the expected RMB 39.94 billion.

Adjusted net profit increased by 53% year-on-year to RMB 57.31 billion, significantly exceeding the expected RMB 48.67 billion.

Diluted earnings per share were RMB 4.994, an 85% year-on-year increase.

Cash Flow: Free cash flow in the second quarter was RMB 40.4 billion, with a net cash flow from operating activities of RMB 54.1 billion.

2) Revenue Breakdown by Four Major Businesses:

Value-Added Services: Revenue from value-added services in the second quarter was RMB 78.82 billion, a 6% year-on-year increase, accounting for 49% of total revenue, slightly lower than the 50% in the same period last year.

Advertising: Network advertising revenue was RMB 29.87 billion, a 19% year-on-year increase, accounting for 19% of total revenue, higher than the 17% in the same period last year.

Financial and Corporate Services: Revenue from financial technology and enterprise services was RMB 50.44 billion, a 4% year-on-year increase, accounting for 31% of total revenue, compared to 32% in the same period last year.

Others: Revenue from other businesses was RMB 19.84 billion, a 46% year-on-year increase.

3) Business Highlights:

Gaming: Tencent's gaming business resumed growth in the second quarter, with domestic market gaming revenue increasing by 9% year-on-year to RMB 34.6 billion (a 2% year-on-year decrease in the first quarter); international market gaming revenue increased by 9% year-on-year to RMB 13.9 billion (a 3% year-on-year increase in the first quarter).

Video Accounts: The total user usage time of video accounts saw a significant year-on-year increase, benefiting from enhanced recommendation algorithms and more localized content.

Mini Programs: The total user usage time of mini programs increased by over 20% year-on-year, with total revenue increasing by over 30% year-on-year

Tencent Video: Multiple popular TV dramas were launched, driving a 13% year-on-year increase in long video paid members to 117 million.

Tencent Music: The number of Tencent Music paid members increased by 18% year-on-year to 117 million.

3) User Situation:

WeChat and WeChat: As of June 30, 2024, the combined monthly active accounts of WeChat and WeChat reached 1.371 billion, a 3% year-on-year increase, exceeding the expected 1.36 billion.

QQ Mobile: The monthly active accounts of QQ Mobile reached 570 million, basically in line with expectations and the same period last year.

Members: The number of paid value-added service members increased by 12% year-on-year to 260 million, also in line with expectations.

Regarding the performance in the second quarter, Tencent summarized in the financial report:

The performance in the second quarter of 2024 demonstrated the advantages of our platform-content integration strategy. Our domestic market game revenue recovered and grew, while international market game revenue accelerated, benefiting from the increased engagement of several evergreen game users and the successful release of several new games. By adapting self-produced TV dramas based on online literature IP, Tencent Video achieved significant growth in audience and paid members.

Is the Gaming Business Emerging from the Winter?

In the second quarter, Tencent's gaming business achieved growth in both domestic and international markets, especially driven by the successful operation and release of several key games. Specifically:

Domestic market game revenue recovered year-on-year, increasing by 9% to 34.6 billion RMB (a 2% year-on-year decrease in the first quarter), mainly due to the revenue growth of "Fearless Alliance" and the successful release of "Dungeon & Warrior: Origin."

International market game revenue increased to 13.9 billion RMB, with growth rates of 9% calculated on a reported and fixed exchange rate basis, and a 3% year-on-year increase in revenue in the first quarter.

In terms of key games, "Honor of Kings" and "Peacekeeper Elite" both saw year-on-year revenue growth in the second quarter of 2024, and the mobile game "Naruto" reached a new milestone of 10 million average daily active accounts in May 2024. The recently released game "Dungeon & Warrior: Origin" activated millions of IP fans.

In the international market, due to frequent content updates and social features, "Brawl Stars" achieved a historic high in average daily active accounts in the second quarter, ranking third in terms of daily active accounts among international mobile games, with game revenue growing more than tenfold year-on-year.

Before the financial report was released, institutions expressed optimism about the recovery of Tencent's gaming business, with CICC's Internet team raising Tencent's full-year game revenue growth rate expectation to 6%.

Advertising Business Maintains Steady Growth

Tencent's advertising business achieved steady growth in the first half of 2024, especially benefiting from the promotion of video accounts and long video content in the online advertising business. Meanwhile, Tencent improved the precision and efficiency of its advertising business through technical platform upgrades and the expansion of content ecologyThe financial report shows that Tencent's online advertising business achieved a year-on-year growth of 19% in the second quarter, reaching RMB 29.87 billion, with a quarter-on-quarter growth of 13%, mainly due to seasonal growth in advertising activities after the Spring Festival holiday. However, due to the reduction of advertising budgets by some internet service companies, the revenue of the mobile advertising alliance in the second quarter decreased year-on-year.

The gross profit of the online advertising business increased by 36% year-on-year to RMB 16.6 billion, with a quarter-on-quarter growth of 14%, and the gross profit margin increased from 49% in the same period last year to 56%.

Further Emphasis on AI

AI technology had a significant positive impact on Tencent's second-quarter financial report. For example, Tencent enhanced its recommendation algorithm through AI technology, accurately analyzed user preferences, increased user engagement, and boosted advertising revenue.

In addition, the enterprise service business achieved revenue growth through AI technology, especially in cloud services and the commercialization of WeChat Work.

The financial report shows that in the second quarter, Tencent's revenue from financial technology and enterprise services increased by 4% year-on-year, reaching RMB 50.4 billion.

Since the launch of its AIGC application, its functionality has continued to improve, and its deep AI search function covering official accounts has become a core competitive advantage. Meanwhile, Tencent's mixed-element large model has been implemented in nearly 700 internal Tencent businesses and scenarios, including intelligent upgrades for SaaS products such as meetings and collaborative office tools.

Regarding the business outlook for the second half of the year, Tencent stated that it will continue to invest in platforms and AI technology to create new business value and provide better services.

Repurchased 155 Million Shares in the First Half of the Year

On Wednesday, Tencent announced on the Hong Kong Stock Exchange that as of June 30, 2024, the company had repurchased a total of 154,730,000 shares (155 million shares) on the Hong Kong Stock Exchange for a total consideration of approximately HKD 52.3 billion (excluding expenses), and the repurchased shares have since been cancelled. The repurchase aims to enhance long-term shareholder value