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March 21, 2018
Total revenue up 56% and a 61% year-on-year increase in operating profit, but share price down 2% across the day. Some people are just never happy.
While the short-term disappointment of the market might be a bit of a dampener for the Tencent management team, it certainly does have a lot to be happy about. Aside from some notable increases in total revenues and operating profit, the annual financial report also demonstrated a 74% year-on-year increase in profit attributable to shareholders. The last three months has also seen a 14.7% increase in share price, a number which increases to 106% over the last twelve months. There certainly is some good work going on here.
“During 2017 and continuing in 2018, Tencent made important strategic moves that reinforced our leadership,” said Ma Huateng, CEO of Tencent.
“Our streaming video service became the China market leader with the most mobile daily active users and monthly subscriptions. Our Weixin Mini Program platform rapidly expanded its developer base and user adoption. Our QQ Speed Mobile racing game and PUBG: Exciting Battleground shooter game achieved absolute leadership in, and grew the audiences of, their respective genres.
“Looking forward, we are substantially increasing our investment in areas including video, payment, cloud, AI technologies and smart retail, which will impact our near term earnings but which we believe can generate long term value and growth opportunities.”
Looking at the individual business units for the final quarter of the year, Value Added Services (VAS) business increased by 37%, online games revenues increased by 32%, revenues from online advertising business increased by 49%, while other businesses increased revenues by 121%. The other businesses section mainly compromises of payment related and cloud services.
In terms of social media, perhaps the area Tencent is most well-known for, the combined Weixin and WeChat user numbers exceeded 1 billion accounts. Although the vast majority of this user base will be from its domestic Chinese market, Tencent must be keeping a wary eye on the international space wondering whether there is an opportunity to grow.
With Facebook being hit by privacy scandals and Twitter being accused of harbouring terrorists, the grip on the digital world might be loosening slightly. As public opinion towards the social media giants is turning sour and suspicious, there could be room for a new and refreshing brand to capture the hearts of the online-hungry.
While the future prospects of Tencent does look positive, shareholders were perhaps put off by the promise of lower profitability in the future. Tencent has promised to continue investing heavily in areas such as artificial intelligence to remain relevant in the world of tomorrow, but this might be the reason for the 2% decline in share price.
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