"Tencent to Continue Improving Q1 Performance Despite COVID-19 Impact"

[Asia Economy Reporter Eunmo Koo] Tencent is expected to continue improving its performance in the first quarter of this year despite the impact of the novel coronavirus (COVID-19).

According to Shinhan Financial Investment on the 21st, Tencent's revenue for the fourth quarter of last year was 105.8 billion yuan, up 24.6% year-on-year, and net profit increased by 51.7% to 21.6 billion yuan, exceeding market expectations by 2% and falling short by 6%, respectively. Revenue by segment was 52.3 billion yuan for VAS (online games + SNS), up 19.8% year-on-year; 29.9 billion yuan for Fintech and Business (hereafter Fintech), growing 38.5%; and 20.2 billion yuan for online advertising, up 18.7%. Net profit fell short of consensus due to a significant increase in interest expenses caused by rising debt from mergers and acquisitions and content investments.

The online gaming segment recorded over 20% revenue growth (25.2%) for the first time in seven quarters. Growth was driven by a 37% increase in mobile game revenue. As of the end of last year, Tencent developed five of the top 10 global monthly active user (DAU) mobile games.

Despite the COVID-19 situation, performance improvement is expected to continue in the first quarter of this year. Researcher Yongmin Cho of Shinhan Financial Investment said, “Although there are concerns about the slowdown in growth in the Fintech segment (including mobile payments and cloud), the growth of the VAS division, which accounts for half of the revenue, is expected to offset this.” He added, “In particular, VAS has a gross profit margin of 50.1%, higher than Fintech’s 28.1%, and mobile payments are defending profits by reducing marketing costs, so profitability improvement is expected.”

The strong performance of online games, which account for 36.7% of total revenue, is expected to continue in the first quarter. Researcher Cho forecasted, “Due to COVID-19, the popularity of ‘Penta Storm’ and ‘Peacekeeper Elite’ in China, and ‘Mobile Battlegrounds’ and ‘Call of Duty Mobile’ overseas will expand, driving performance growth.” He continued, “The increase in WeChat users and average usage time positively contributes to the SNS segment’s performance. Although market volatility and weakened investment sentiment due to COVID-19 are inevitable, we expect differentiated stock price movements during the first quarter earnings season based on stable performance.”

This content was produced with the assistance of AI translation services.