Credit：Visual China

In the quarter ended September 30, Tencent’s total revenue surged 10% year-over-year (YoY) to RMB154.6 billion, slightly less than the analysts’ forecast of RMB154.8 billion. The net income slid 9% YoY to RMB36.2 billion (US$5.0 billion) but it grew 38% quarter-over-quarter (QoQ), better than the Wall Street expectation of RMB32.38 billion, and the operating profit fell 6% YoY to RMB48.48 billion with a QoQ growth of 20%, also above the estimated RMB43.4 billion. On the Non-IFRS basis, which reflects core earnings by excluding certain one-time and/or non-cash items, Tencent increased the net income 39% YoY to RMB44.92 billion beating analysts’ estimated RMB39.98 billion, and the operating profit of RMB55.48 billion delivered a 6% YoY decline and a 20% QoQ increase.

Tencent attributed its sales growth to advertising, which is the division with the fastest growth in the September quarter. Revenues from online advertising increased 20% YoY to a record high RMB25.7 billion, propelled by robust advertising demand for Video Accounts, mobile ad network, and Weixin Search, with notable growth in the local services and FMCG categories.

Tencent for the first time revealed performance of Weixin’s closed-loop advertising, whose revenue is derived from advertisements linking to the landing pages of Weixin Mini Programs, Video Accounts, Official Accounts and WeCom. The ad revenue increased over 30% YoY and contributed over half of Weixin advertising revenue. At Weixin, Video Accounts’ total video views climbed over 50% YoY. Original content video views increased rapidly and now make up the large majority of Video Accounts’ total video views.

Tencent began monetizing video accounts via in feed ads in the third quarter last year, and have expanded its artificial intelligence (AI) models with more parameters to improve the ad targeting and attribution accuracy, which is believed to be a driver for its ad revenue growth. It also started to provide generative AI tools to advertiser partners, which enables them to dynamically generate ad visuals based on text fronts and to optimize ad sizes for different inverse inventories.

“Relatively new services such as Video Accounts and Mini Games contributed high margin revenue streams while we re-focused away from less-scalable activities. We are increasing investment in our AI models, providing new features to our products and enhancing our targeting capabilities for both content and advertising,” said Tencent Chairman and CEO Pony Ma, or Ma Huateng. Ma has expressed great expectation on the video feature of WeChat last December, and labeled it as the most eye-catching business under the Weixin Group (WXG) , even touted it as the fundamental hope of the whole company.

As the world’s largest video games publisher, Tencent kept growth of its mainstay business this year. Value-added services, the segment includes games, generated RMB 75.7 billion with a 4% YoY increase in the third quarter. Total revenue from games gained 7% YoY to RMB46 billion, the positive growth for the third consecutive quarter. Social Networks revenues were broadly stable at RMB29.7 billion, supported by revenue growth from music subscriptions, Mini Games platform service fees, and app-based game virtual item sales, offset by revenue declines from music-related and games-related live streaming services

Domestic games brought RMB32.7 billion, driven by the recent launches of Lost Ark and VALORANT, as well as increased revenues from evergreen titles such as Honour of Kings and DnF. The games sales accelerated in the third quarter, compared with the roughly stalling growth in the previous quarter.

International games maintained double-digit growth this year with revenue of RMB13.3 billion, rising 14% YoY to the highest in the year. Tencent said it saw a revenue recovery for PUBG Mobile, alongside healthy revenue contributions from Goddess of Victory: NIKKE, VALORANT, and Triple Match 3D, versus decreased revenue from Tower of Fantasy, attributable to a tough comparison against its launch quarter in the same period last year.

At an earnings call with analysts, Tencent President Matin Lau highlighted his company has nine games in pipeline, including Honor of Kings World, Valorant Mobile, Monster Hunter Mobile and Assassin's Creed Mobile. Lau said Tencent has a substantial pipeline of new games in development including games that expand our own game IPs and mobile games that utilize popular licensed IPs. He said the highly quality revenue growth model provides Tencent with earnings growth irrespective of whether it is launching a mage in a quarter or not.

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