On November 16, Tencent announced its results for the third quarter of 2022. In the third quarter, Tencent achieved operating income of 140.1 billion yuan, a year-on-year decrease of 2%, and a quarter-on-quarter increase of 5%; net profit (Non-IFRS) was 32.254 billion yuan, a year-on-year increase of 2%, and a quarter-on-quarter increase of 15%. stabilized.
”In the third quarter, our adjustments to adapt to the new industry paradigm have begun to bear fruit. We launched news feed advertisements in the video account, made breakthroughs in international game distribution, and refocused on the core through cost reduction and efficiency enhancement measures. business and effectively control cost growth,” Tencent said in its financial report.
Third quarter performance stabilized
According to the financial report, from the perspective of revenue segment, Tencent’s largest revenue segment is still value-added services. In the third quarter, revenue was 72.7 billion yuan, a year-on-year decrease of 3%, accounting for 52% of total revenue.
In terms of value-added service revenue, game revenue in the international market increased by 3% to RMB 11.7 billion. Due to the transitional challenges of the industry, the number of paying users decreased, and game revenue in the domestic market decreased by 7% to RMB 31.2 billion.
As far as individual games are concerned, affected by the protection measures for minors that will take effect from September 2021, the revenue of “Glory of the King” and “Peace Elite” decreased, while “League of Legends Mobile Games”, “Return to the Empire” and ” Recently launched titles such as League of Legends Esports Manager increased revenue.
In addition, social network revenue decreased by 2% to RMB 29.8 billion, reflecting the increase in revenue from video account live broadcast services and music paid membership services, while the revenue from music live broadcast, game live broadcast and video paid membership services decreased.
In this quarter, Tencent’s second largest revenue segment is financial technology and enterprise service revenue of 44.8 billion yuan, a year-on-year increase of 4%, accounting for 32% of total revenue.
According to the financial report, the growth of this sector has benefited from the recovery of online and offline commercial payment activities. The year-on-year growth rate of financial technology service revenue has increased compared with the previous quarter, while corporate service revenue has slightly decreased year-on-year, reflecting the company’s continued commitment to reducing loss-making projects.
The third largest revenue segment is online advertising, with revenue of 21.5 billion yuan this quarter, a year-on-year decrease of 5%, accounting for 15% of total revenue.
According to the financial report, the decline rate of online advertising has narrowed compared with the previous quarter, due to the improvement in demand in the gaming, e-commerce and fast-moving consumer goods industries, as well as the gradual fading of certain industry-specific headwinds from 2021. Social and other advertising revenues decreased 1% to RMB 18.9 billion, reflecting continued weakness in advertising demand in several industries, offset by strong demand for in-feed advertising in video accounts. Media advertising revenue fell 26% to RMB 2.6 billion, reflecting a decrease in Tencent’s video advertising revenue, mainly due to fewer popular TV dramas and the Tokyo Olympics held in the same period last year.
Reduce holdings of Meituan
It is worth noting that on the day the financial report was released, Tencent announced that it would “declare an interim dividend by distributing class B ordinary shares of Meituan in kind.”
According to the announcement, the 958,121,562 Class B ordinary shares of Meituan to be distributed are equivalent to approximately 90.9% of the Class B ordinary shares of Meituan held by Tencent, accounting for approximately 15.5% of the total issued shares of Meituan (on the basis of one share, one vote). Based on the closing price of Meituan’s Class B ordinary shares traded on the Stock Exchange on November 15, 2022 at HK$166.4 per share, the total market value of this part of Meituan’s shares is approximately HK$159.4 billion.
According to public information, Tencent has participated in multiple rounds of financing of Meituan since 2014, holding a total of 17% of Meituan’s shares and is the largest shareholder of Meituan. After the dividend, Tencent’s stake in Meituan fell to less than 2%.
Tencent announced that despite the in-kind distribution, the company and Meituan will continue to maintain a mutually beneficial business relationship, including through its ongoing strategic cooperation agreement.
Meituan also issued an announcement on the evening of the 16th, stating that the company announced on the same day that due to the proposed change in the shareholding of Tencent Holdings Co., Ltd. (Tencent) in the company, Mr. Liu Chiping has resigned as a non-executive director, effective from November 16, 2022.
Meituan announced that the company is aware that Tencent currently indirectly holds approximately 17.0% of the company’s outstanding shares through multiple entities, and announced that it will distribute approximately 958 million Meituan Class B ordinary shares to its shareholders. After the distribution is completed, the Tencent shareholders who received the company’s shares in this distribution will become the company’s shareholders. Meituan and Tencent will maintain a mutually beneficial and win-win business cooperation relationship, including the continuation of the existing strategic cooperation agreement. Lau Chiping said that in the future, Tencent will continue to maintain close cooperation with Meituan to jointly facilitate the deep integration of the digital economy and the real economy and create greater value for consumers, merchants and society.
On December 23, 2021, Tencent Holdings also distributed about 460 million shares of JD.com to shareholders in the form of mid-term dividends. After the dividend, Tencent’s shareholding in JD.com dropped from 17% to 2.3%.
executive response
In the third-quarter financial report conference call on the evening of November 16, Tencent executives responded to the distribution of Meituan and JD.com stocks, saying that whether the company distributes stocks in the form of dividends depends on three factors, the financial strength of the investment object, industry positioning and investment. return.
Regarding the investment in Meituan, a Tencent executive said, “If we look at the return on investment, we have already had a very good return on investment, with an internal return on investment of about 30%. Considering shareholders, this investment has achieved considerable results. Economic benefits.”
In addition, Tencent executives said that there is a large overlap between Tencent and Meituan’s institutional investors, which is also an incentive to distribute Meituan shares. For institutional investors, some investors can choose to sell, while others can continue to hold Meituan for a long time.
In terms of investment, Tencent executives said that the global digital transformation is still in its infancy, and Tencent will continue to invest in corporate services, games, short video content and other fields in the future.
A reporter from Nanduwan Finance and Economics learned that there are still five listed companies with Tencent’s investment ratio exceeding 10%, namely Pinduoduo with 15.5% shares, Keike with 11.5% shares, Kuaishou with 21.49% shares, and Bilibili (B station) with 12.4% shares Shares, Zhihu 12.02% shares. There are 2 listed companies with an investment ratio of less than 10% and more than 5%, among which they hold 9.8% of Vipshop and 6.4% of Didi.
Among the above-mentioned companies, Tencent is the largest shareholder of Kuaishou and Zhihu; it is the second largest shareholder of Pinduoduo, Station B, Vipshop, and Shell.
In addition, when asked about the issue of game version numbers, Tencent executives said that in the domestic game market, there are indeed headwinds. Policies on the protection of minors and version numbers are very strict. The current macro environment is full of challenges, but industry regulation is If necessary, business adjustments are required to meet regulatory requirements. The company is changing its development strategy, focusing resources on games with high production value and global goals, while spending more time and resources on upgrading and incentivizing Tencent’s existing large games.
”The reason for the decline in the value of Tencent’s shareholding is on the one hand related to the overall shrinking of the market value. In the first quarter, the stock prices of listed companies such as JD.com, Meituan, and Pinduoduo all fell sharply. On the other hand, it is also the result of Tencent’s continuous reduction of holdings and asset sales.” Securities analyst Pi Haizhou told a reporter from Nanduwan Finance Agency.
The reporter noticed that since the end of 2021, Tencent has made drastic cuts to its six listed companies, including Heilan Home, JD.com, Singapore Donghai Group, BBK, New Oriental, and Huayi Brothers, through dividends and transactions. Holdings, the total value of cash out is about 130 billion yuan. Among them, for Huayi Brothers, which has invested for 130 years, Tencent even sold it at a loss of hundreds of millions of yuan.
”Internet giants are more cautious in terms of capital scale, investment quantity, and investment fields, and are no longer staking their land as before.” Many industry insiders said in an interview with a reporter from Nanduwan Finance and Economics that the global economy is going down. Under the regulatory policy of disorderly expansion of capital, Tencent needs a large amount of funds for stock repurchases, and at the same time, the funds returned from the reduction of holdings can also be used for new tracks.
