First, 20Q1 review: performance significantly exceeded expectations, social advertising, mobile games outstanding performance

Let's briefly review 20Q1's performance:Q1 Tencent achieved revenue of 108.065 billion yuan, up 26% year-on-year (Bloomberg unanimously expected 101.06 billion yuan, up 18% year-on-year), net profit 28.896 billion yuan, up 6% year-on-year; non-GAAP net profit 27.079 billion yuan, up 29% year-on-year (Bloomberg consensus forecast 24.738 billion yuan, an increase of 18%).

Tencent's Q1 revenue and profit significantly exceeded expectations, and effect advertising and mobile games were the main drivers of growth.The revenue of value-added services is 62.4 billion yuan (year-on-year + 27%), online advertising 17.7 billion yuan (year-on-year + 32%), financial and enterprise business 26.5 billion yuan (year-on-year + 22%), and other businesses 1.4 billion yuan.

Benefiting from the Spring Festival + epidemic situation, living at home promotes the high economic performance of Q1 games.Online game revenue of 37.298 billion yuan increased by 31% year-on-year and 23% month-on-month, taking into account the game distribution revenue in social network revenue.The revenue of mobile games was 34.8 billion yuan, an increase of 64% over the same period last year.Domestic mobile games mainly come from head games such as "Game for Peace" and "Arena of Valor". At the same time, Supercell also contributes a small part of the income increase.The extended income increased by 22.8 billion yuan in the first quarter, far exceeding the previous level.It can support the rapid growth of the company's game revenue after the epidemic.

Advertising business is also growing rapidly.Social advertising grew by nearly 50% year-on-yearMedia advertising fell by only 10%, with an overall growth of about 32%. Social ads with high gross margins account for 82%.

Second, 20Q2 outlook: game revenue growth is still strong, advertising growth is slowing down

For the performance of Q2, China International Capital Corporation and Nomura Securities both believe that the game is expected to achieve 30% year-on-year growth; social advertising revenue growth may significantly slow down from 47% of the peak of Q1 to 20%.

1. Games

CICC expects overall game revenue to be 35.7 billion yuan, up 31 per cent from a year earlier and down 4 per cent from a month earlier.Among them, PC game revenue fell 3% year-on-year and 4% month-on-month.Mainly because Internet cafes are not fully open, and lack of new games or large-scale game updates.The revenue of mobile games was 33.1 billion yuan, up 49% from the same period last year, down 5% from the previous month.It is mainly affected by:

1) the popularity of major games decreases after the gradual return to work.

2) the growth during the epidemic of overseas mobile games is not as significant as that during the epidemic of domestic mobile games.

3) the contribution of new online games such as "under one person" and "Operation Wilderness" has been confirmed to be less than one month.

4) although domestic mobile games are expected to grow by about 50-60% year-on-year, due to the long deferred cycle of major games, we expect the actual revenue increase (30% +) to be much smaller than that of running water. In addition, considering the strong deferred revenue in the first quarter (22.4 billion yuan month-on-month growth), it will partially offset the above impact.

Nomura expects the strong momentum of mobile games to continue, driving overall revenue from online games to grow by 36% year-on-year.Tencent's mobile game revenue is expected to increase by 60% in the second quarter compared with the same period last year (market expectation: 45%)主It comes from deferred revenue in the first quarter and growth in overseas business as a result of the blockade measures adopted by many countries in the second quarter.The latter also benefits US game publishers, such as EAUSA (unrated), which performed better in the second quarter. PC game performance is still weak, revenue is expected to fall 11% year-on-year.

2. Advertising

CICC expects advertising revenue of 18.1 billion yuan, up 10 per cent year-on-year and 2 per cent month-on-month.Among them, media advertising revenue continues to decline compared with the same period last year, and the growth rate of social advertising revenue will slow to 20% from the peak of Q1 growth. The opening of the fourth ad space on Wechat moments brings new exposure. Activities such as "5.20,6.18" push up the filling rate, and the proportion of video ads increases and the average unit price of ads increases, which will effectively promote the growth of social advertising Q2 revenue compared with the same period last year.

Nomura believes that the growth of advertising revenue in Q2 may be significantly slower than that in Q1.Advertising revenue will grow by 11% year-on-year (market expectation: 18%), of which media advertising revenue may fall 27% year-on-year, while social advertising revenue may grow 25% year-on-year. Education and e-commerce are the two industries with the best advertising demand in the second quarter, but as the time players spend on games tends to be normal, advertising spending by online game operators is likely to decline.

3. Financial technology and corporate services

Nomura expects Tencent's financial technology and cloud business revenue to accelerate to 28% year-on-year growth in the second quarter from 22% in the first quarter, mainly due to a recovery in offline consumer activity.

III. Business expectations and ratings

Bloomberg's consensus forecast for Tencent's Q2 performance is that revenue is 112.439 billion yuan, up 26.6% from a year earlier, and adjusted net profit is 29.173 billion yuan, up 24% from a year earlier.