TENCENT Q2 Earnings Outlook: Video Accounts Expected to Boost Advertising Business, Gaming Business May Experience Seasonal Decline | Earnings Report

In the spotlight, Tencent, the leading technology and internet company, will release its Q2 2023 earnings report after the Hong Kong stock market closes today.

According to Bloomberg data, it is widely predicted that Tencent's Q2 revenue will reach 152.021 billion yuan, representing a YoY growth of 13.4%. The adjusted net profit under the Non-IFRS is expected to increase by 31.4% YoY, reaching 36.982 billion yuan, a QoQ increase of 13.6% from the previous quarter. The adjusted EPS is expected to be 3.81, reflecting a YoY growth of 44.8%.

Tencent's main businesses (as stated in the Q1 report) are divided into value-added services, including games and social networks (53% of revenue), online advertising (14% of revenue), financial technology and cloud services (32% of revenue), and others.

Most securities firms generally believe that the revenue from online advertising is expected to grow by 23%-25% YoY in Q2.

The summer season will see a surge in new game releases, leading to a significant acceleration in the gaming business in the second half of the year.

Tencent's financial technology revenue is expected to grow by 17%-20% YoY. In terms of cloud services, the release of Tencent Cloud's large-scale model has expanded the market's growth expectations for its B-end services. It is projected that enterprise services will grow by 6% YoY in Q2 and will have incremental opportunities in the second half of this year.

Market consensus suggests that game revenue will experience a seasonal decline MoM, with a slowdown in YoY growth. It is expected that domestic game revenue in Q2 will be 33.512 billion yuan, a YoY increase of 5.4%, down from 35.1 billion yuan in Q1. Overseas game revenue will be 13.263 billion yuan, a YoY increase of 24.0%, on par with Q1's 13.2 billion yuan.

China Merchants Securities pointed out that domestic game revenue is expected to experience a slight MoM decline due to seasonal factors. Flagship games such as "Honor of Kings" and "Peacekeeper Elite" have shown stable performance, while "League of Legends" and "Dungeon & Fighter" continue to contribute to cash flow.

In terms of overseas markets, "PUBG Mobile" returned to the top of Sensor Tower's overseas mobile game growth and download rankings in June, which is expected to further increase the proportion of overseas game revenue in Q2.

Guosen Securities analysis suggests that despite

Securities firms generally believe that in Q2, driven by a low base and macroeconomic factors, Tencent's online advertising business is expected to be the fastest-growing segment. The monetization of video accounts and the increase in market share in e-commerce will further enhance Tencent's advertising market share, with advertising revenue expected to increase by approximately 25% YoY in Q2.CICC Securities analysis pointed out that the growth of Tencent's online advertising business in the second quarter is expected to mainly come from the macroeconomic recovery combined with the peak season of e-commerce, while also benefiting from the structured increment brought by Video Account.

Huatai Securities believes that,

Guosen Securities analysis pointed out that the domestic circulation e-commerce is the second growth curve of short video platforms, and is expected to become a new growth point for Video Account advertising:

In May, the native advertising capability of Video Account was upgraded to support short video promotion in Video Account live rooms, helping merchants improve conversion. In addition, advertising spaces such as WeChat Moments and Official Accounts are open for live room traffic diversion.

Overall, the current WeChat Video Account e-commerce ecosystem is still in its early stages of development, with tremendous potential, and further progress needs to be observed.