Latest performance:
Total revenue for 2Q24 was RMB 161.1 billion, up 8% year on year; gross profit was RMB 85.9 billion, up 21% year on year; non-IFRS operating profit was RMB 58.4 billion, up 27% year on year; non-IFRS profit attributable to company shareholders was RMB 57.3 billion, up 53% year on year.
Value-added services: Domestic games have resumed growth, and the growth rate of international game traffic is higher than revenue 1) International game revenue was RMB 13.9 billion, an increase of 9% over the previous year, mainly due to the rise in popularity of “PubgMobile” and Supercell games. Notably, the overall turnover of international games is growing faster than revenue growth.
2) Domestic games were RMB 34.6 billion, up 9% year on year. Revenue growth resumed, mainly driven by increased revenue from “VALORANT” and the successful release of the “Dungeons and Warriors” mobile game. The overall revenue growth rate of domestic games also exceeds the increase in revenue.
3) Social network revenue was RMB 30.3 billion, up 2% year over year. This was mainly due to increased revenue from music and long video subscriptions, increased service fees for applet game platforms, and increased sales of app-based game virtual items, despite a decline in music and game-related live streaming revenue.
Online advertising: Total user usage time of video accounts increased significantly year-on-year. In terms of online advertising, revenue for the second quarter of 2024 was RMB 29.9 billion, an increase of 19% year over year, mainly driven by an increase in video and long video revenue. Mobile ad network revenue declined year-on-year due to reduced advertising budgets of some internet service companies. Total user usage time of video accounts increased significantly year-on-year, thanks to Tencent's improved recommendation algorithm and provision of more local content. Tencent is systematically strengthening transaction capabilities to provide users with a seamless shopping experience and promote merchant sales.
Fintech and corporate services: Consumer spending weakens
Fintech and corporate services revenue increased 4% year over year in the second quarter of 2024 to reach RMB 50.4 billion. Revenue growth from fintech services has slowed to low single digits, mainly due to a further slowdown in commercial payment revenue, reflecting weak consumer spending. Furthermore, revenue from consumer loan services declined due to stricter risk controls, while revenue from wealth management services achieved double-digit growth. Enterprise service revenue increased by more than ten percentage points, mainly driven by cloud service revenue, including improvements in enterprise WeChat monetization and increases in e-commerce technology service fees in video accounts.
Investment advice
We expect the company's net profit (non-IFRS) for 24/25/26 to be 211.577/237.304/261.435 billion yuan. The previous forecast was 203.345/219.946/245.432 billion yuan. The company has a long-term competitive advantage in the social ecosystem and maintains a “buy” rating.
Risk warning
AIGC technology changes disrupt the existing competitive landscape; policy and regulation uncertainty; game development delays