Just two days before the release of the first quarter financial report, Tencent first gave a report on sustainable social value At the beginning of the report, there are two important messages: one is "the slowdown of income and profit growth", and the other is "taking this shift to create higher quality development" This obvious signal paves the way for the next financial report.
This is a tug of war. Tencent has found a starting point.
Author Chen Chen editor Zheng Xuan
Tencent's net profit fell continuously in the first two quarters, and the situation has not improved this time. In the first quarter of 2022, Tencent's total revenue was 135.5 billion yuan, basically the same as that of the same period last year, and its net profit (non IFRS) was 25.5 billion yuan, a year-on-year decrease of 23%. The fluctuation of stock price also lasted from 2021 to 2022.
Regulation, epidemic situation and sluggish market environment... Tencent listed many influencing factors in its financial report. Tencent is experiencing "challenges" and "tests". Once again, it has verified that this is a "comprehensive and long-term" struggle.
01. The epidemic has repeatedly slowed down the progress of "self-healing"
The recurrence of the epidemic caught Tencent off guard, which is also directly reflected in the business of advertising and financial technology.
Even if the advertising business was reported in the last quarter, it may continue to decline in the first three quarters of this year. Its performance is still lower than the expectations of core investment banks and worse than expected.
In the first quarter, the revenue of online advertising business decreased by 17.6% to 18 billion yuan. Compared with the previous quarter, the decline accelerated, including social and other advertising revenue decreased by 15%, and the advertising revenue of media such as Tencent News and Tencent video continued to decline, with a decline of 30%.
In addition to the contraction of the advertising market caused by industry changes, the erosion of market share by short video advertising and the tightening of supervision, the epidemic in the first quarter was also a very strong headwind factor in the advertising business.
Tencent's management said at the performance teleconference that many major international customers who focus on marketing are headquartered in Shanghai, and the blockade of the epidemic has compressed the advertising willingness of advertisers. As Beijing has also joined the sealed team, the operation of more businesses has deteriorated and the marketing budget has been reduced.
Now, it may be a question mark whether advertising revenue can be restored in the fourth quarter of this year as expected.
Jinke enterprise service also failed to surpass the game business again. It increased by 10% year-on-year in the first quarter, and the revenue growth slowed down again, far lower than the market expectation of 15 ~ 20%.
Among them, the growth rate of financial technology service revenue slowed significantly. According to the financial report, since mid March, commercial payment trading activities have continued to be weak due to the repeated impact of the epidemic in some cities. The service income of enterprises decreased slightly compared with the same period, but compared with the previous rapid growth, the gap between them is also obvious.
At the same time, the revenue and cost of Jinke enterprise services increased by 11% year-on-year, and the cost growth rate was higher than the revenue for two consecutive quarters. Last quarter, Tencent responded to the problem of high costs, explaining that the main reason is to obtain customers with low prices and customized services.
The financial report also proposed that Tencent actively contracted its loss making business in the first quarter and concentrated its resources on PAAS solutions in the fields of video cloud and network security. However, the underlying problems perplexing the industry remain unresolved, that is, how to differentiate cloud computing products and how to sell products through standardization.
According to the financial report, Tencent carried out cost control on this business and took the initiative to reduce loss contracts. The financial report also reflected that the revenue and cost in the first quarter narrowed month on month.
At the beginning of this year, CSIG was rumored to have made a large proportion of layoffs. I don't know whether this has contributed to their cost control, but the optimization effect of this part on profits may not be reflected until the second quarter or later.
02. Release the version number, but it is difficult to open the game market
In the first quarter, the game revenue was basically the same as that of last year, which was lower than the market expectation. Among them, the game revenue in the local market decreased by 1% and the game revenue in the international market increased by 4%.
In the financial report, Tencent separately presented the revenue of mobile games and computer games. The revenue of computer games increased slightly year-on-year, but the performance of mobile games was poor, down 3% year-on-year. In 2022, Tencent launched five novice games, and the newly launched games did not perform well as expected.
"League of heroes hand tour" and "golden shovel war" brought some revenue increases, but most of them were offset by the decline in revenue of other games. The download volume of "glory of the king" and "peace elite" IOS channels increased month on month, but the growth rate of net income decreased month on month. The overseas game market has also fallen due to the recession of the global unsealed Houzhai economy.
Since the second quarter, a major change in the game field is the re opening of the version number.
In April this year, 263 days later, the release of domestic game version numbers resumed. For the game industry, this undoubtedly releases a positive signal, even though none of the first 45 approved games belongs to Tencent.
"The previous policies hurt startups the most". When asked about the version number, Liu Chiping said it was reasonable to distribute the version number to startups first. "Relatively speaking, it didn't hurt companies with large scale and multiple games".
Release list of the first batch of game version numbers in April 2022
Although the game version number is open, the game approval will be more strict in the future.
According to the information disclosed by the conference call, Tencent has long been aware of this. Tencent said that in the past two years, the upstream and downstream of the game business have focused on the development of high-quality games and concentrated resources on a smaller number of games. For them, who will take over the glory of the king may have been a problem.
Tencent also continued its commitment of "cultivating key IP" in the previous quarter. According to the financial report, Funcom, a subsidiary, released the real-time strategy PC game "dune: Spice war" adapted from the sci-fi IP "dune". In April this year, the game was launched in a preemptive mode. The heroic shooting tactical competitive game "apex legends mobile" jointly developed by Tencent and electronic arts It was also launched on May 17, after more than 16 million players pre registered on the official website.
Dune: Spice war game interface
For Tencent, it is an indisputable fact that only a few games can enter the market in the future. They also said that even without the change of regulatory environment, users will put forward higher requirements for the quality of games. Compared with other competitors in the industry, Tencent has and invested more human and resources. In their words, Tencent is "ready to take the lead" in the industry ".
As the regulatory environment tends to stabilize, they also seem more willing to maintain a positive attitude and believe that "the revenue and growth of the game industry will improve in the coming months".
03. When will the video number be commercialized
In the financial report, Ma Huateng listed the video number, enterprise software and international game market into the "strategic growth field of continuous investment". Whether in the financial report or in the subsequent conference call, the video number is classified as a "good" business.
Thanks to the improvement of recommendation technology and the increasing enrichment of news, pan knowledge and entertainment content, the number of users, playback volume and use time of video numbers have increased significantly. However, it is clear that this business has not yet entered a good stage of commercialization.
The revenue cost of Tencent's value-added services in the first quarter increased by 11% year-on-year to 36.1 billion yuan, and the revenue cost of video number live broadcasting service is a major part of it. The earnings report also mentioned that the revenue of live broadcasting service increased in the quarter, but most of it was offset by the decrease in the revenue of music live broadcasting and game live broadcasting.
As for how to realize the video number, the financial report did not show a good way. In the conference call to answer analysts' questions, Tencent gave a less clear answer - "the final realization mode is similar to that of similar products in the current market".
Wechat circle of friends and official account advertising
For video numbers, their current focus is still on improving the user experience. "Raising one first" not only reflects Tencent's attention to this business, but also reveals the hidden worry that commercialization may damage the original ecology. As they said when answering the questions of analysts, "like the advertisements in wechat circle of friends, video advertisements should not affect the user experience".
Tencent may not have no plan for the future of the video number. In the teleconference, they said that the video number may have a higher CPM (cost per thousand people), which also means that Tencent will take improving the advertising conversion rate as the goal and find a commercial balance without damaging the ecology.
Tencent also revealed its idea of opening up each module and building a wechat ecosystem: "when the modules of IM, applet, video number and official account are connected, users will spend a long time on the platform, and we will have more opportunities to consider cashing in."
When information flows between private and public domains, it is likely to improve the conversion efficiency of advertising, which is a difficult condition for other short video and long video platforms to fight alone.
Previously, CITIC Securities had predicted that wechat video number would open the realization of information flow advertising by the end of 2022. If we refer to the advertising in the circle of friends, video advertising is expected to increase revenue by 37 billion yuan in 2023, which may be the biggest focus of Tencent in the future.
More "veteran" long videos do not have the growth potential of video numbers. If you want to summarize them in one word, it can only be "balance of payments".
Tencent also hopes that video can take the route of "high-quality products", and optimize the cost by controlling the quality and value of video content and temporarily abandoning some content. Of course, as a super group in the entertainment industry, Tencent has both advantages and courage to make "high-quality products". Their next step is to vertically integrate the upstream IP. In their view, the classic IP in the fields of online novels, mobile games and comics can be well combined with video content.
Considering the huge losses of station B and iqiyi, as well as the recent price increase measures of Tencent video members, even if Tencent wants to solve the problem of large investment and poor return of long video, I'm afraid it's not so easy.