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Games and Media Lift China’s Tencent to 30% Profit Increase

Patrick Frater
·4-min read

Strong games, music and media performances between April and June helped China’s Tencent deliver a robust quarterly financial performance through the depths of the coronavirus crisis.

Group revenue in the second quarter was up by 29% to RMB114 billion ($16.3 billion), with net profits climbing by 37% to RMB32.4 billion ($4.63 billion). For the first half of the year (January to June), revenues climbed by 28% to RMB223 billion ($31.9 billion) with profit of RMB61.9 billion ($8.82 billion) up 18%.

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The company, which recently saw its massively successful WeChat super-app as the target of an executive order by U.S. president Donald Trump, said it saw growing business from regular subscribers. At the end of the period, it claimed 203 million paying subscribers to its music, video and library services, with 114 million alone for its streaming video platform.

With China affected by COVID-19 earlier than many other economies, and emerging from it quicker, there were contrasting trends in Tencent’s games business in the second quarter. In China, user time spent on smart phone games increased year-on-year but decreased quarter-on-quarter due to seasonality and back-to-office behavior. “Honour of Kings” was the star performer, with Supercell’s “Brawl Stars” ranked first in the iOS China download chart in June.

Internationally, games usage shot up both year-on-year and quarter-on-quarter, due to new game launches and more user time spent during the stay-at-home period. Tencent released an immersive team-based action game for PC, “Valorant,” which was the most watched game globally on Twitch during the second quarter.

Fee-based value added service subscriptions increased 20% year-on-year. Tencent says this was primarily due to growth in video and music subscriptions. Video subscriptions were driven by self-commissioned Chinese anime and drama series, such as “The Land of Warriors” Season 3, “Candle in the Tomb: The Lost Caverns” and “The Romance of Tiger and Rose.”

Tencent reported that traffic for long-form video sites in China, including Tencent Video, declined as China returned to office-based work and as delayed releases of key variety shows and drama series dented its offering. But the company also said that traffic has increased again since the end of June, helped by the arrival of new series “Nothing But Thirty.”

Revenues from subscriptions increased by 35% to RMB65.0 billion for the second quarter of 2020 on a year-on-year basis. Online games revenues grew by 40% to RMB38.3 billion.

Also contributing to the subscription revenue growth was contributions from digital content services including the e-sports live broadcast activities of New York Stock Exchange-listed Huya, which Tencent consolidated as a subsidiary from April 2020.

This week Tencent proposed a merger of Huya with its rival the NASDAQ-listed DouYu, in which it also holds a large minority stake. A merger, if it happens, would create a giant in live streaming and e-sports with over 300 million monthly users (before elimination of overlaps) and would also give Tencent further leverage in the gaming field.

On a conference call after the figures announcement, the company went to some pains to explain that WeChat and Weixin are separate products, intended for different markets — WeChat for international territories, and Weixin inside China — and that Trump’s order does not affect the all-powerful Weixin. Tencent took no questions on the subject from financial analysts or media, but issued a holding statement instead.

“We note that an executive order was issued on 6 August 2020 by the President of the United States of America to prohibit certain transactions related to our WeChat application and subject to the jurisdiction of the U.S. The company is reviewing the potential consequences of the executive order to develop a fuller understanding of its impact on the Group. The company will make further announcements as and when appropriate,” the statement read.

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