Tencent has continued its rise to prominence in the competitive Chinese technology sector reporting a year-on-year revenue increase of 48% over the course of H1 to $10.2 billion.

Jamie Davies

August 18, 2016

4 Min Read
Tencent posts 48% growth thanks to mobile gaming and premium video

Tencent has continued its rise to prominence in the competitive Chinese technology sector reporting a year-on-year revenue increase of 48% over the course of H1 to $10.2 billion.

While the Chinese economy has been slowing in recent months, the country’s three largest internet players, Tencent, Alibaba and Baidu, have been demonstrating healthy growth. The Tencent team has largely attributed revenue growth to a diversification of its revenue streams including digital music, mobile gaming and online video. Performance based advertising increased by 80% year-on-year over the second quarter, with Weixin Moments, the mobile news app, and Weixin Official Accounts, taking particular praise.

“During the second quarter, we sustained solid growth in our platforms and businesses, including our social and media platforms, games, digital content, advertising, and payment services,” said Ma Huateng, CEO of Tencent. “We executed strategic initiatives to strengthen our ecosystem and to reinforce our ability to bring best-in-class entertainment content to our users.”

The success of the business would appear to be largely built on the success of both the Weixin and WeChat, the two social media platforms. Although neither of these brands are particularly well known outside of the Chinese market, the combined Monthly Active Users (MAU) reaches 806 million, increasing 20% year-on-year. While the general perception of WeChat is an instant messaging (IM) service similar to WhatsApp, Tencent has gone one step further to incorporate its own social media platform, similar to Facebook, in the app.

Aside from some useful revenue streams, eLoyalty Cards can be offered by merchants on the platform in lieu of physical cards, the two platforms now offer Tencent a significant user base through which the other business units can be advertised. Advertising through social media platforms is by no means a new idea, though Tencent’s efforts in growing its platforms will reduce its own advertising spend by a healthy amount.

In terms of the additional revenue streams, online video is an area which provided to be a particular success for the business. Although there may have been some reservations when initial moves were made into the premium content market, Tencent’s success has demonstrated if the right content is made available, Chinese users are willing to pay the premium. Tencent became the official Chinese online distributor for a number of HBO’s shows, including Game of Thrones, which has been credited with the growth in premium content. A partnership with the NBA to broadcast live games in the country was also a commercial success, as unique users more than doubled online for the 2015-16 season versus the 2014-15 season, when the rights were split between multiple platforms. Tencent Video helped brand advertising revenues grow 41% to roughly $430 million for the period.

Mobile gaming has been considered one of the prominent wins for the team here, as Tencent’s deal with Supercell would appear to be paying dividends. A majority stake in mobile games developer Supercell was completed in June for $8.6 billion, pushing Tencent into the international arena. While the Supercell deal made headlines around the world, Tencent has had a prominent position in the Chinese mobile gaming space for some time. ‘Honour of Kings’, a mobile strategy game owned by Tencent, was the top performing mobile game in China over April, May and June. Revenues for mobile gaming accounted for $1.45 billion, a year-on-year increase of 114%.

Tencent, along with the other Chinese internet giants, is seemingly defying slowdown trends across China posting healthy growth across the first half of 2016. For the moment, it would appear to be content focusing on the Chinese market, though recent acquisitions could demonstrate a desire to enter into the international markets sooner rather than later. Revenues in China are unlikely to dry up in the near future, assuming Tencent maintain the effective partnerships which has driven success to date, though the Supercell acquisition certainly offers a route into the international market. As of December 2015, Tencent wholly owns Riot Games, developer of League of Legends, and also acquired a 20% stake in San Francisco-based mobile storytelling community Pocket Gem. The company has not indicated it will be making any international moves in the near future, though investments made over the last 12-18 months are increasing Tencent’s influence worldwide.

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