Tencent, one of China’s leading technology companies, recently reported its second-quarter profit, which fell below expectations. Despite this, the company experienced a rise in sales across its various businesses and began to see the positive impact of cost-cutting measures implemented last year.
In Q2, Tencent’s revenue reached 149.21 billion Chinese yuan ($20.46 billion), representing an 11% year-on-year increase. However, this figure fell short of the estimated 151.73 billion yuan. Profit attributable to equity holders of the company was 26.17 billion Chinese yuan, marking a 41% year-on-year rise, but still lower than the expected 33.42 billion yuan.
Tencent’s commitment to cutting costs and focusing on core businesses has started to pay off. The company, known for its popular messaging app WeChat, is now witnessing growth across its gaming and cloud computing sectors. They stated, “During the second quarter of 2023, we sustained a solid revenue growth rate, along with a gravitation toward high-quality revenue streams with better margins.”
This quarter marks the third consecutive period of revenue growth for Tencent as it recovers from the challenges faced in 2022. The company’s gaming business experienced a significant slowdown compared to the previous year, partly due to the effects of the pandemic and changing entertainment preferences. Additionally, Chinese regulators halted the approval of new games for several months, impacting Tencent’s ability to release new titles. However, the ongoing weaker-than-expected revenue growth reflects the slower-than-anticipated recovery of the Chinese economy after the pandemic.
In terms of its gaming revenue, Tencent reported that domestic game revenue remained flat at 31.8 billion yuan, mainly due to the release of “less-commercial content” in its major titles. However, the company expects a return to year-on-year growth in the third quarter. On the other hand, revenues from Tencent’s International Games unit increased by 19% to 12.7 billion yuan, driven by successful titles such as Valorant.
While gaming performance showed mixed results, Tencent’s advertising unit had a strong quarter. Ad revenue surged by 34% year-on-year to 25 billion yuan, surpassing expectations. The company attributed this growth to robust demand for advertising on its short-video platform. Additionally, Tencent experienced a 15% year-on-year increase in revenue from its financial technology and cloud computing division, boosted by transactions on its short video platform and steady growth in cloud services.
Overall, despite challenges faced in the Chinese market, Tencent is making efforts to optimize its operations and focus on high-quality revenue streams. With its diverse portfolio of businesses, the company aims to maintain its growth trajectory and strengthen its position in the technology industry.
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