Tencent Holdings (NASDAQOTH: TCEHY) announced fourth-quarter 2018 results late Thursday. The Chinese internet services giant delivered stronger-than-expected revenue even without a long-awaited acceleration in growth from its enormous gaming business.
With Tencent shares down around 3% on Friday as of this writing, let's take a closer look at how it ended the year, as well as what investors should be watching in the coming quarters.
IMAGE SOURCE: GETTY IMAGES.
Tencent results: The raw numbers
84.90 billion yuan ($12.37 billion)
66.39 billion yuan
Net profit attributable to Tencent shareholders
14.23 billion yuan ($2.07 billion)
20.80 billion yuan
Earnings per diluted share
DATA SOURCE: TENCENT HOLDINGS.
What happened with Tencent this quarter?
- Adjusted for one-time items, Tencent's (non-GAAP) profit attributable to shareholders grew 13% year over year to 19.73 billion yuan, or 2.07 yuan per diluted share (or roughly $0.31 per share).
- Tencent doesn't provide quarterly financial guidance. So for perspective, these results compared favorably with consensus estimates for adjusted earnings of $0.26 per share on revenue of $12.29 billion.
- Combined monthly active users (MAUs) for WeChat and Weixin grew to 1.098 billion, up from 1.083 billion last quarter, as Weixin increased penetration in lower-tier cities and expanded its age group of users.
- MAUs for instant-messaging platform QQ climbed to 807 million (from 802.6 million last quarter), helped by new entertainment content and AI features to improve its chat experience.
- Smart-device MAUs for social-networking site Qzone fell 3.9% year over year to 532.4 million, but also rose slightly from 531.1 million last quarter.
- Fee-based value-added services (VAS) subscriptions climbed 19.1% to 160.3 million, bolstered by a 58% increase in Tencent Video subscribers to 89 million.
- VAS revenue grew 9.3% to 43.65 billion yuan, including:
- 24.2 billion yuan from online games, roughly stable from a year ago
- 25% growth in social networks revenue, to 19.45 billion yuan, driven by live broadcast services and video streaming subscriptions
- Online advertising revenue grew 38% to 17.03 billion yuan, including:
- 26% growth in media ad revenue, to 5.19 billion yuan, driven by Tencent Video and Tencent News
- 44% growth in "social and other" ad revenue, driven by Weixin Moments, Mini Programs, and news feed QQ KanDian
- Revenue from all other businesses grew 72% to 24.21 billion yuan, driven largely by FinTech and cloud services.
- Adjusted EBITDA increased 18% year over year to 29.7 billion yuan.
What management had to say
Tencent CEO Ma Huateng touched on the company's latest strategic growth initiatives, as well as its broad restructuring announced this past October:
In 2018, we continued to enhance our services within our established Consumer Internet domain, and strengthened our initiatives in capturing the emerging Industrial Internet opportunities, while sustaining healthy financial metrics. Users and enterprises embraced the powerful functionalities of our Mini Programs, which became the largest and most vibrant ecosystem of their kind in China. We expanded our mobile game publishing presence globally and extended our digital content capabilities in China. We widened our leadership in mobile payment and enriched our FinTech service offerings. Our organizational upgrade, together with our ongoing investments and innovations, position us to drive the evolution of Consumer Internet and to unleash the potential of Industrial Internet for both our partners and ourselves.
Management also reminded investors that, after a nine-month hiatus on approvals of new video game licenses last year, Chinese gaming industry regulators resumed their approval process in December. So far, eight Tencent games have received approval, including seven smartphone games and one PC game.
"Since there is a sizable backlog for the banhao applications in the industry," the company added, "our scheduled game releases will initially be slower than in some prior years."
Here again, Tencent did not provide specific financial guidance. Rather, the company says it will keep investing "in core infrastructure and frontier technologies to embrace the trend of the Industrial Internet, while continuing to drive the evolution of the Consumer Internet."
In short, I think this was as strong a quarter as any Tencent shareholder could have asked for. Though some investors may be disappointed that we haven't seen its core gaming business start to ramp up following the resumption of game license approvals by regulators, Tencent remains well positioned to capitalize on multiple growth opportunities in the burgeoning Chinese tech space.
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