Tencent results show finance costs outpacing revenue growth

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Tencent results have shown a dramatic drop in quarterly earnings

Source: Bloomberg

 

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 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Wednesday 18 May 2022 

Tencent Holdings

Tencent, the investment holding company principally involved in the provision of value-added services (VAS) and online advertising services, has reported results for the three months ending 31 March 2022

Salient features of the groups quarterly financial results are as follows:

• Revenue unchanged year on year, down 6% quarter on quarter

• Gross profit down 9% year on year and 1% quarter on quarter

• Basic earnings per share down 51% year on year, 75% quarter on quarter

• Diluted basic earnings per share down 51% year on year, 75% quarter on quarter

In terms of the group’s operating segments the following has been noted

Gaming

On the gaming front key revenue generators like PUBG demonstrated a post pandemic normalisation (decline) in user activity and spend. The groups top ranked mobile game in China, Honour of Kings also failed to capitilise on in app purchases over the Chinese New Year holiday period as it had in previous years.

Online advertising

The group has highlighted a soft quarter in this department, as advertising in Fast Moving Consumer Goods (FMCG), eCommerce and Travel has attracted significantly less investment. Tencent is now looking to provide better targeting through machine learning to improve conversion rates and targeting for clients. Revenue from this category fell by 18% year on year.

Communication and social

Regulatory changes have impacted the group’s mobile advertising network to weigh on the divisions revenues by 15%. Losses in revenue here were partially offset by notification feed adds on official accounts.

Fintech

The hard lockdown commencing mid-March in China, has had an adverse effect on payment services across transportation, dining services and apparel. Unfortunately this trend will have continued in the current operating quarter as the lockdown remains in place, affecting at least six weeks of business activity therein.

Digital content

Paid VAS subscriptions increased by 6% year on year. Long-form video streaming subscribers now total 124 million, while music subscription accounts have now reached 80 million.

Comments on results

A weak reporting quarter from Tencent Holdings highlights rising group costs outpacing gains in revenue and diminished earnings from associate contributions. Tencent’s net financing costs have risen more than 42% year on year from rising debt obligations and lower foreign exchange repatriation.