Tencent posts fastest jump in quarterly revenue in more than a year after China reopens

Tencent reported an 11% jump in quarterly revenue Wednesday, marking its fastest growth in more than a year, as the company saw a big rebound in payment volumes, ad sales, and gaming.

Here’s how Tencent did in the first quarter, versus Refinitiv consensus estimates:

• Revenue: 150 billion Chinese yuan ($21.4 billion) vs. 146.09 billion yuan expected, a rise of 11%% year-on-year.
• Profit attributable to equity holders of the company: 25.8 billion yuan vs. 31 billion yuan expected, a rise of 10% year-on-year.

Tencent reported results after the market close in Hong Kong Wednesday. Shares of Prosus, a major Tencent shareholder in Europe, were barely changed.

The results mark a strong bounce back to growth for Tencent after a succession of negative and flat quarters. The company said in its earnings that it benefited from a solid recovery in domestic consumption in China, which finally began easing its aggressive Covid-19 restrictions in December.

Net profit “increased at a faster pace, reflecting a positive revenue mix shift, operational efficiencies, and an easy base period,” Tencent said in the report Wednesday.

Investors were focused on whether the reopening of China’s economy will give a boost to the country’s tech giants, including Tencent. China’s economy grew 4.5% in the first quarter, the fastest pace in a year.

The Chinese tech industry as a whole faced intense scrutiny as part of a broader regulatory tightening by Beijing that began in late 2020 and wiped off more than a combined $1 trillion from the country’s biggest companies.

Tencent, which is a major owner of and investor in tech businesses worldwide, has been shedding some of its equity investments as Beijing remains on high alert about the size of domestic tech companies.

But more recently, there have been signs the central government is softening its stance toward internet titans like Tencent, Alibaba, and Didi.

In 2021, Chinese regulators froze the approval of new video game releases, which badly impacted Tencent. However, over the past few months, Beijing has loosened its grip on the industry greenlighting more titles for release.

Tencent said Wednesday that limitations on when kids can play games had a big impact on the contribution of minors to its overall gaming revenue. Minors contributed 0.4% of total time spent and 0.7% of total gross receipts for domestic games in the quarter, down 96% and 90% respective year-over-year.

Amid a tougher gaming market at home, Tencent has boosted its focus on international markets. Tencent said the international gaming business saw strong growth, with its battle royale title Valorant seeing year-on-year gross receipts growth of 30%.

PUBG Mobile, another popular battle royale title, resumed sequential growth in daily active users, Tencent said.

The bulk of Tencent’s overall revenues came from its value-added services, which refers to virtual goods including video games. This segment accounted for 57% of the company’s total sales.

Of that segment, international gaming was the biggest driver, Tencent said, with overseas game sales growing 25% year-over-year to 13.2 billion yuan.

Domestic game sales, by contrast, grew by 6% year-on-year to 35.1 billion yuan.

Social network revenues, which includes Tencent’s WeChat and QQ instant messaging apps, increased by 6% to 31 billion yuan driven by in-game virtual item sales and the company’s music subscription service.

Fintech and business services, which includes Tencent’s WeChat Pay payments service, accounted for 32% of revenue. Revenues in that segment grew 14% year-on-year to 48.7 billion yuan, an acceleration from the fourth quarter of 2022, thanks to recovery in commercial payment volumes due to a rebound in China consumption, Tencent said.

Business services growth was primarily driven by a jump in sales in Tencent’s cloud services division, which has become an greater focus for the company lately.