Tencent’s cornerstone business games have stopped growing: revenues have declined year-on-year in Q2, whether it is a local game that has touched the ceiling or an overseas market that is regarded as a blue ocean. Game growth is no longer the primary condition for future profit g

Tencent 's cornerstone business game has stopped growing: whether it is a local game that has touched the ceiling or an overseas market that is regarded as a blue ocean, revenue has declined year-on-year in Q2. Game growth is no longer the primary condition for future profit growth.

Tencent's comprehensive cost reduction and efficiency improvement results have begun to appear, and negative net profit growth has narrowed for two consecutive quarters. In the future, the number of people and salary will be further evolved, and it is planned to continue to reduce costs in cloud services, payments, long videos, video accounts and other businesses.

Video Account is regarded by Tencent as a strong new revenue growth curve. However, at present, the user stickiness is low, and has not yet stepped out of the private comfort zone and has not yet built rich and diverse content, so it is still difficult to assume the heavy responsibility of riding alone to save the master.

Tencent’s Q2 financial report for 2022 released on August 17 showed that many key indicators were lower than expected: revenue was 134 billion yuan, a year-on-year decline of 3%, the first time since its listing; net profit was 18.6 billion yuan, a year-on-year decline of 56%; non- international accounting standards net profit (Non-IFRS) net profit was 28.1 billion yuan, a year-on-year decline of 17%.

The business of each sector is also not satisfactory:

• Local game revenue fell 1% year-on-year;

• International game revenue fell 1% year-on-year;

• online advertising revenue fell 18% year-on-year;

• Jinke and corporate service increased 1% year-on-year.

top students have handed in bleak report cards for several consecutive quarters. Are Tencent’s performance and stock price going to the end?

Company management said on the earnings call, "Our current share price is seriously undervalued" and said that revenue growth will resume in the coming quarters. Perhaps this remark gave the market confidence. In the early trading session on August 18, Tencent opened higher than 4%.

Ma Huateng stated in its financial report that during the Q2 period, Tencent voluntarily withdrew from non-core businesses, tightened marketing expenses, reduced operating expenses, and achieved non- international financial reporting standards profit growth month-on-month under the pressure of revenue. Tencent will continue to improve business efficiency and add new revenue sources, including launching information flow advertisements in the video account.

Currently, Tencent’s stock price is around 300 yuan, which has returned to the level 5 years ago. The gaming and advertising business grew negatively, and the new growth engine fintech and enterprise services (hereinafter referred to as "FBS business") hit the brakes, while the investment business brought losses on the books, and rumors of selling Tencent shares in exchange for funds are everywhere.

Faced with difficulties, Tencent’s way to break through is to continue to reduce costs and increase efficiency, and regard video accounts as a new growth engine.

The game has faded out of growth

game business is not only the cornerstone of Tencent, but also the synonym for high growth, but it has now fallen into a negative growth curve.

In the second quarter, the value-added business was still Tencent’s largest cash bull, accounting for 54% of the total revenue and revenue of 71.7 billion yuan, a slight decrease of 0.4% year-on-year. The revenue of games, which are affiliated to the value-added business, was 42.5 billion yuan, a year-on-year decrease of 1.2%.

Among them, local game revenue fell by 1% year-on-year to 31.8 billion yuan. Tencent explained that this is due to a series of transitional challenges facing the local market, including a decline in the number of large-scale game releases, a decrease in user consumption and the implementation of protection measures for minors.

The domestic game market is generally weak in Q2. According to reports from the Game Working Committee and the China Game Industry Research Institute, the domestic game market's Q2 sales revenue fell by 7% year-on-year. Tencent, which has always firmly occupied half of the domestic game market, is also facing a dilemma of being in trouble. The revenue of old games such as " Honor of Kings " and " League of Legends " has declined, while the MAU of new games such as " League of Legends Mobile Games " and "Golden Shovel Battle" is far less than that of old games.

According to Quest Mobile data, in March 2022, the MAU of "League of Legends Mobile Game" was only 15% of "Honor of Kings". The rise of new games cannot make up for the decline gap of old games, and the overall income is on the downward trend. The prospects for Tencent’s local games are still unclear. Four rounds of game version number have been issued this year, and Tencent has all bye.

, which was once regarded as a blue ocean by Tencent, also suffered negative growth: revenue was 10.7 billion yuan, a year-on-year decrease of 1%. Since the international and local businesses were disclosed separately in the financial report of Q3 last year, the revenue of the international game business has shown a significant decline, and has dropped from the 34% high of last year's Q4 to -1% in Q2 this year.

financial report explained that this is because the international game industry began to digest the impact of the post-epidemic era, and revenues of "PUBG Mobile" and "Battle of the Wild" fell.

This shows that after the "stay-at-home economy" has faded, overseas markets are by no means a blue ocean that can be roamed with the wind. The global mobile game market once reached a 33% growth peak two years ago, but began to fall rapidly in the first quarter of this year.

According to Sensor Tower data, the global mobile game market in the first half of 2022 fell by 6.6% year-on-year. Craig Chapple, an analyst at the agency, believes that the recession is extraordinary and shows that the mobile game market has faced a major challenge.

In this weak environment, Tencent Game 's overseas performance was even worse. According to data from the Game Working Committee, the actual sales revenue of China's independently developed games overseas increased by 6.16% year-on-year in the first half of 2022, which was significantly lower than the industry average. The downturn in the gaming business may run throughout the year. Tencent management said, "We believe that by next year, game revenue will resume growth." But at the same time, it also emphasized that game revenue growth is not a prerequisite for profit growth. The cake saved by

cost declines, which is the keyword of the second quarter financial report.

Overall, Tencent’s total cost of Q2 was 76.1 billion yuan, a year-on-year increase of 1% and a month-on-month decrease of 3%. The cost reduction and efficiency increase of several consecutive quarters has also narrowed the negative growth of Tencent's net profit.

Due to strict control over marketing activities expenditure, sales and marketing promotion expenditure fell by 21% year-on-year to 7.9 billion yuan. The cost of the three major main business has all declined: the cost of value-added business, advertising business and FBS business has decreased by 2%, 3% and 4% month-on-month respectively. The most obvious narrowing of the cost of

is the FBS business. Starting from 2019, the financial report separately disclosed FBS's financial data, viewing it as one of the most important revenue sectors in the next decade. But FBS is both a magic medicine for growth and a poison for gross profit, and the cost has remained high.

is also why FBS has become a key area for reducing costs and increasing efficiency. In Q2 this year, FBS's cost decreased by nearly 7 billion yuan from its Q4 high last year, which also increased its gross profit margin from 27.3% to 33.4%.

In terms of personnel expenditure, Tencent has also reduced it. Since March this year, Tencent has repeatedly reported rumors of layoffs, focusing on multiple departments of PCG (platform and content business group) and IEG (interactive entertainment business group). According to the financial report, the number of Tencent employees in Q2 decreased by nearly 5,500 month-on-month, a decrease of 5%. General and administrative expenses for the quarter fell 2% month-on-month to 26.2 billion yuan due to optimized staffing and controlled employee costs.

is mapped to the business level, and Tencent continues to implement the strategy of "exiting non-core business". According to incomplete statistics, since April this year, Tencent has closed at least 10 apps, including Sogou Search App and Tencent Kandian App, and Phantom Core stopped sending digital collections.

Tencent will continue to wield the axe of reducing costs and increasing efficiency, and will further evolve the number and salary in the future. It plans to continue to reduce costs in cloud services, payments, long videos, video accounts and other businesses.

Video Account is highly expected to be

Enterprises' way of improving profits is nothing more than increasing revenue and reducing expenditure. Reducing expenditure depends on reducing costs and increasing efficiency. Video Account has taken over the heavy responsibility of Tencent's opening up source.

In the second quarter, the relevant content of the video account appeared at the forefront of the financial report text. Tencent used a string of data to highlight the growth results of the video account:

• The total user usage time exceeded 80% of the circle of friends;

• playback volume increased by more than 200% year-on-year;

• recommended playback volume based on artificial intelligence increased by more than 400% year-on-year;

• daily active creators and daily average video upload volume increased by more than 100% year-on-year.

Video Account has also become Tencent’s new source of income. In mid-July, the Video Account released information flow advertisements and sold advertisements in the form of basic contracts.By the end of August, bidding methods will be added and more advertising space will be released.

Tencent gave some optimistic outlooks: "The commercial climbing process of video accounts will be similar to the circle of friends. The advertising revenue in the circle of friends will be 1 billion yuan per quarter, which took five quarters. Based on the existing traffic scale and advertisers' strong demand for short video advertising, it is expected that the climbing progress of video accounts will be faster... Video accounts will become a strong new revenue growth curve for us."

However, in a short period of time, Video accounts may not be able to bear the heavy responsibility of riding alone to save the owner.

Whether it is advertising or live streaming, user stickiness is an important consideration. Although the user size of the video account is huge, its stickiness is still insufficient. It is more like a fat man than a strong muscular man, and his strength is still weak.

According to QuestMobile data, in June 2022, the monthly active users of WeChat Video Account were 813 million, which has exceeded Douyin (680 million) and Kuaishou (390 million), but the stickiness is far from the same. According to data from the Video Light Research Institute, the average usage time of video numbers in 2021 exceeds 35 minutes, which is only 1/3 of that of Douyin and Kuaishou during the same period.

In addition to advertising revenue, live streaming sales is a way that video accounts cannot avoid. Tencent’s management also admitted that “in the long run, it is necessary to go from short videos to live e-commerce.”

But the difficulty of video accounts in live e-commerce is that it is difficult to replicate Douyin’s public domain strategy. As a member of the WeChat ecosystem, video accounts mainly rely on private domain chains to spread, and the traffic pool is limited; on the other hand, content is still the shortcoming of video accounts. Compared with Douyin and Kuaishou, video accounts lack high-quality and diverse original content and their own top anchors.

As mentioned earlier, on Tencent’s huge business territory, the gaming and advertising business have seen negative growth. Financial technology and corporate services, which were once regarded as “one of the most important revenue sectors in the next decade”, stepped on the brakes and tried to recreate an investment business with a market value in Tencent, which would bring losses on the books.

's growth "small" for 24 consecutive years. How to draw a beautiful growth curve in the future will be a new test faced by Ma Huateng and a number of management teams.

This article is from Xuebao Finance and Economics