Tencent debuts new business segment in push towards revenue diversification

Payment and ad revenue grew significantly as Tencent reduces its dependency on games.

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Tencent reported double-digit revenue and profit growth in Q1 2019 and gave observers a fresh view into its payments and cloud businesses by breaking out “Fintech and Business Services” revenue for the first time.

Overall, Tencent’s total revenue reached nearly RMB 85.5 billion (USD 12.7 billion) in Q1 2019, up 16% year-on-year, with operating profit at RMB 36.7 billion (USD 5.5 billion), up 20% year-on-year. Profit for the period was RMB 27.9 billion (USD 4.1 billion), an increase of 16% year-on-year. Net margin was flat at 33%.

Aside from the new business segment, another thing to note was the growth in revenue across Tencent’s payments, cloud, and advertising segments, while gaming revenue continued to sag.

Fintech and business services generated RMB 21.8 billion (USD 3.1 billion), a 44% increase from the year before, driven mostly by payments, as well as its lending business.

Ad revenue climbed 25% year-on-year to nearly RMB 13.4 billion (USD 1.9 billion), with social and “others” advertising raking in over RMB 9.9 billion (USD 1.4 billion), accounting for 34% of growth, thanks to revenue from WeChat Moments, WeChat Mini Programs, and QQ.

Combined monthly users on Weixin and WeChat reached 1,112 million, up 6.9% year-on-year, while QQ users surpassed 700 million, growing nearly 1% year-on-year, with monthly usage among younger users growing at a double-digit rate.

Meanwhile, gaming revenue, previously the focal point of Tencent’s monetization, decreased 1% year-on-year to RMB 28.5 billion (USD 4.1 billion), with smartphone gaming revenue down 2% year-on-year to RMB 21.1 billion (USD 3.1 billion).  Still, Tencent’s cash receipts from in-game payments grew 10% year-on-year, while total daily users for its smartphone gamers also grew year-on-year.

Meanwhile, revenue from Tencent subscription services or value-added services (VAS) grew 4% to RMB 49 billion (USD 7.1 billion), up 4% year-on-year.

The disclosure of a new fintech and cloud business segment and the increased focus on growing advertising revenue comes after Tencent restructured its business lines in October 2018 following a half-year long slide in its stock price.

The company’s gaming unit, its core revenue driver, was hit hard after the Chinese government suspended approvals on all new game releases for a nine-month period from March 2018 onwards.

Editor: Nadine Freischlad