On the afternoon of November 15 (Beijing Time), Tencent released its financial report for the third quarter of 2023, showing a total revenue of 154.63 billion yuan, marking a 10% year-over-year increase. The net profit under non-U.S. GAAP was 44.92 billion yuan, up 39% from the previous year. However, Tencent's operating profit experienced a 6% decline compared to the same period last year.
The revenue structure of Tencent reveals that financial technology and corporate services continue their growth trajectory, accounting for 34% of the total revenue. Value-added services contributed nearly half of the income, representing 49%, while online advertising made up 16%.
WeChat's Commercialization Efforts
The financial data indicates that WeChat is intensifying its commercialization efforts to meet Tencent's revenue expectations. WeChat Channels (微信视频号, which means "Video Account", is WeChat's public short-video feature) and mini games have become sources of high-profit margins for Tencent.
For the first time, Tencent introduced the concept of "WeChat's Pan-Internal Circulation Advertising Revenue," which includes ads from WeChat mini-programs, WeChat Channels , official accounts, and WeChat Work. This segment saw a year-over-year increase of over 30%, contributing more than half of WeChat's advertising revenue.
WeChat Channels experienced a surge in total play volume, exceeding a 50% year-over-year increase. Tencent highlighted the strong growth in original content plays on WeChat Channels, which now constitute a significant portion of the total play volume.
Thanks to the increase in play volume and user engagement time, the advertising revenue from WeChat Channels showed a notable quarter-over-quarter growth, with a stable ad load rate percentage.
In the corporate services sector, Tencent's third-quarter revenue grew by 16% to 52 billion yuan. The financial technology services continued to see double-digit year-over-year growth, mainly driven by increased commercial payment activities and wealth management service revenue.
The year-over-year growth rate of corporate services exceeded that of the second quarter, primarily due to Tencent's earlier optimization of its cloud services business structure and increased fees for WeChat Channels-based sales technology services.
Investment in Large Models Reflected in Ad Revenue
Tencent is adjusting its business focus, shifting from markets with limited space to those with higher growth potential, such as increasing investments in artificial intelligence large models and enhancing precision in content and ad recommendations. The company emphasized the expansion of AI model parameters for advertising to make ad placements more targeted.
Specifically, in the third quarter, Tencent began offering generative AI tools to advertisers, enabling them to automatically generate ad materials through text descriptions and adapt them to various ad inventories, creating more material sizes.
This shift is reflected in the numbers: Tencent's online advertising revenue in the third quarter was 25.7 billion yuan, a 20% year-over-year increase.
Tencent attributed this growth primarily to increased demand for WeChat Channels, mobile ad alliances, and WeChat search, especially from local services and fast-moving consumer goods industries.
International Gaming Market Continues to Grow
In the value-added services segment, Tencent's revenue increased by 4% year-over-year to 75.7 billion yuan. International gaming market revenue grew by 14% to 13.3 billion yuan, with a 7% increase excluding currency fluctuations. This growth was mainly due to the revenue rebound of "PUBG Mobile" and contributions from "Goddess of Victory: Nikke," "VALORANT" (known as "Fearless Contract" in China), and "Triple Match 3D."
However, revenue from "Tower of Fantasy," developed by Perfect World and distributed overseas by Tencent's Level Infinite, declined compared to the same period last year.
In the domestic gaming market, revenue grew by 5% to 32.7 billion yuan, driven by recent releases like "Ark of Fate," "Fearless Contract," and continued revenue growth from established games like "Honor of Kings" and "DnF."
Looking ahead, upcoming local market game releases include the tactical shooter PC game "Fearless Contract," the hero shooter mobile game "High-Energy Heroes," and the MMORPG mobile game "MapleStory: The Legend of Maple." For the international market, upcoming releases include the first-person tactical shooter mobile game "Dark Zone Breakout."
Social Network Revenue and Cost Management
Social network revenue in the third quarter was 29.7 billion yuan, with growth primarily driven by increased revenue from music subscription memberships, mini-game platform service fees, and mobile game virtual item sales. However, this was offset by declines in music and game live streaming service revenue.
Reduced Welfare Expenses and Staff Reductions
In the first three quarters of the year, Tencent's employee welfare expenses, including share-based compensation, decreased compared to the same period last year, totaling 17.05 billion yuan compared to 20.568 billion yuan.
As of September 30, Tencent's total employee count was 105,309, down from 108,836 in the same period last year, a reduction of 3,527 employees.
Additionally, the financial report revealed that Tencent completed an investment project in the third quarter, acquiring approximately 67% of a gaming company for about 900 million U.S. dollars. Following the transaction, the company will be accounted for as a subsidiary of Tencent. However, Tencent did not disclose the specific target of this investment. Earlier in the year, Tencent invested in the UK's Lighthouse Games and Finland's Techland, with Techland now being Tencent's largest shareholder.
