Description of the event
Tencent 24Q2 achieved revenue of 161.1 billion yuan, +8% year over month, and revenue performance was basically in line with consistent expectations (161.4 billion yuan); achieved operating profit of 50.7 billion yuan, +40% year over year, and -3% month on month; non-IFRS net profit of 57.3 billion yuan, +53% year over month, and adjusted net profit was higher than market expectations (48.7 billion yuan).
Incident comments
A steady stock of games and DNF are driving domestic games back to growth, and high turnover is expected to continue to release revenue and performance increases.
1) “DNF Mobile Games” has activated millions of IP fans and is expected to become the new Evergreen product. “Wang Zhe Rongyao” and “Peace Elite” Q2 sales resumed year-on-year growth; Tencent Q2 domestic game revenue was +9% to 34.6 billion; 2) “Battle in the Wilderness” Q2 recorded a record high, with sales increasing more than 10 times year over year, and “PUBG”'s strong performance, driving Q2's overseas game revenue +9% to 13.9 billion, which is a significant increase compared to Q1; the revenue growth rate is higher than the revenue growth rate, and it is expected that it will continue to release performance in the future; 3) The number of Q2 mini-game sales increased by more than 30%. In addition, “Celebrating the Years 2” and “With Fengxing”, etc., the number of Q2 Tencent Video paid members was +13% to 0.117 billion, and the number of paid Tencent Music members was +18% to 0.117 billion, but the live streaming related business was still declining. Due to these factors, Q2 social network revenue was +2% to 30.3 billion compared to the same period last year. WeChat's commercial potential continues to be unleashed, and advertising growth is still strong. 1) The total usage time of Q2 video accounts increased significantly year over year, with applets increasing by more than 20% year on year, continuing the high growth rate of Q1; 2) Video number and long video advertising revenue increased significantly. The advertising growth rate slowed month-on-month due to the reduction in advertising budgets of Internet service companies and the decline in mobile ad network revenue, and Q2 advertising revenue was +19% to 29.9 billion. Video accounts, etc. are driving the growth of enterprise services, and the growth rate of payment business is slowing down due to consumer spending. 1) Due to the slow growth in consumer spending and the decline in loan service revenue, Q2 company Jinke's revenue growth rate fell to a low single digit; 2) Applet transaction volume achieved double-digit growth. Accelerated commercialization of video accounts also drove the increase in technical service fees for video account merchants. Combined with the increase in enterprise and micro commercialization and the increase in cloud business revenue, Q2 enterprise service revenue grew 10% +. Under the combined impact, Q2 FinTech and Enterprise Services revenue was +4% year-on-year to 50.4 billion.
Profit growth continued to surpass revenue growth in the 8th quarter, profitability continued to increase, and joint ventures contributed some of the results. Gross profit side: Benefiting from the continued strength of high-margin emerging businesses such as video accounts, the gross margin of each business continues to rise. Tencent's Q2 gross profit margin was 53.3% (+5.8 pct year over year, +0.7 pct month over month), continuing to hit a new high in recent years. Value-added services (57.0%, +3.1 pct year over year), online advertising (55.6%, +6.7 pct year over year), financial technology and enterprise services (47.6%, +9.2 pct year over year) gross margins all increased. Expenses and profit side: ① Due to the launch of new games, etc., Q2 sales expenses were +10%, and the sales expense ratio was stable year over year; ② due to the increase in business performance of some domestic joint ventures and overseas game studio joint ventures, the non-IFRS scale accounted for 9.9 billion of associated profits (3.9 billion/5.5 billion for 23Q2 and 24Q1, respectively). In addition, deferred income tax adjustments for overseas subsidiaries resulted in 24Q2 income tax expenses of -9% year-on-year to 10.2 billion. Pay attention to shareholders' return on capital. Tencent plans to repurchase HK$100 billion+ and increase dividends in '24. 24H1 has repurchased HK$52.3 billion and has all been cancelled.
Future outlook: 1) WeChat's ecological value continues to show, and profit margins are expected to remain at a high level. WeChat and WeChat's combined MAU increased to 1.371 billion. Benefiting from enhanced algorithms, more localized content, and a strong applet trading and content ecosystem, high-quality and high-margin revenue sources such as WeChat video accounts and applets are expected to continue to grow. 2) The game pipeline is still worth looking forward to. “Operation Delta” is scheduled for September, and key products such as “Breaking Stars” are also expected to be launched within the year. Due to the increase in user time, user activity, and commercialization, WeChat video accounts, etc. still have a lot of room for growth.
Risk warning
1. Risk that product version approval, launch progress and flow performance fall short of expectations; 2. Industry regulatory risks.