Tencent (0700.HK) 3Q18 Results: Solid Revenue Growth Despite Slowdown in Gaming

Source: Company reports/Coresight Research

3Q18 Results

Tencent reported total revenues for 3Q18 of ¥80.6 billion ($11.7 billion), up 24% year over year. The gross margin decreased by 456 basis points to 44% from a year ago due to increased spending. Non-GAAP diluted EPS was ¥2.06, up 15% year over year. Below, we outline the performance of VAS, online advertising and other segments.

Value-added services (VAS): Revenues were ¥44.0 billion for the quarter, up 4.6% year over year, comprising 55% of total revenues. Within VAS, online game revenues decreased 4% year over year to ¥25.8 billion, mainly due to a decline in revenues from PC client games. Revenues from PC games were down by 15% year over year to ¥12.4 billion. Social network revenues increased 19% year over year to ¥18.2 billion, driven mainly by digital content services such as video streaming subscriptions and live broadcast services.

Online advertising: Revenues for this segment were ¥16.2 billion for the quarter, up 47% year over year, accounting for 20% of total revenues. Social and other advertising revenues increased 61% year over year to ¥11.2 billion, reflecting more advertising inventories for properties such as Weixin Moments and new advertising formats such as Mini Programs, as well as growth in revenues from the mobile advertising network and QQ KanDian. Media advertising revenues increased 23% year over year to ¥5.1 billion, primarily due to growth in revenues from Tencent Video due to a successful drama series and self-commissioned variety shows.

Others: Revenue for the others segment was ¥20.3 billion, up 69% year over year, reflecting revenue growth from payment-related and cloud services.

Performance of Operating Drivers

 Source: Company reports/Coresight Research

Combined monthly active users (MAU) of Weixin and WeChat rose 10.5% year over year. Thanks to the fast growth of Mini Programs and Weixin Pay use cases, user engagement and stickiness have shown healthy growth. User activity within Weixin and We Chat benefited from strong growth in social video content viewing, with hundreds of millions of daily social video uploads.

Outlook

The company reorganized to help enterprises and various industries to ride on the new trend of industrial Internet through digitization and technology innovation, and to provide consumers with better integrated entertainment and social experiences to position for future long-term growth. Management did not provide updates on revenue guidance.