With investment to promote investment, Tencent set off again after two and a half years.
Editor’s note: This article is from the WeChat public account “Laikazk” (ID: laikazk), author: Gong Yan.
After the fourth strategic upgrade and organizational structure adjustment, Tencent’s first financial report became a declaration.
On May 20, Tencent released its first quarter 2021 performance report. The financial report shows that in the first quarter, Tencent’s revenue was 135.303 billion (in RMB, the same below), a year-on-year increase of 25%; net profit was 47.8 billion, a year-on-year increase of 65%; net profit (Non-IFRS) was 33.118 billion, a year-on-year increase of 22 %. In terms of specific revenue structure, the three main businesses of value-added services, online advertising, financial technology and corporate services recorded 72.4 billion, 21.8 billion and 39 billion in the first quarter, accounting for 54% and 16% of total revenue respectively. % And 29%.
From this financial data, Tencent’s overall performance is in line with market expectations. Among them, game flow is basically flat and the market is stable, while financial technology and corporate service revenue growth and gross profit margin growth exceed expectations. Tencent’s financial report also shows that it is expected to invest part of the incremental performance in 2021 in new opportunities. The investment in the next few quarters will increase, mainly in corporate services, games and short video content.
Under the current new environment of antitrust, platform economic supervision and its own development needs, Tencent’s financial report can be said to formally sound the clarion call for investment, and for the first time clarified investment priorities, funding arrangements and rhythm Plan etc. During the adjustment period, with the increase in investment and the increase in operating costs, Tencent’s future performance growth will also be under greater pressure.
01
Capital flow and overseas expansion, the dual mission of the basic game of the game
The sudden outbreak in the first quarter of last year caused residents to be isolated at home and economic activities slowed down. Affected by the revenue base year-on-year, Tencent’s two major businesses also experienced significant changes in the first quarter of this year.
The financial report shows that in the first quarter of this year, Tencent’s value-added service business revenue increased by 16% year-on-year to 72.4 billion yuan, which was lower than last year’s average. Among them, game revenue increased by 17% to 43.6 billion yuan, which was mainly due to the revenue of “Honor of Kings”, “PUBG Mobile” and “Peace Elite”, as well as recently launched games such as “Tianya Mingyuedao Mobile”Revenue growth; social network revenue increased by 15% to 28.8 billion yuan, which was due to the growth of digital content subscriptions and the sales of virtual game items.
In the first quarter, Tencent’s financial technology and corporate services business revenue increased 47% year-on-year to 39 billion yuan, which was much higher than last year’s average. The growth of financial technology service revenue partly reflects the long-term impact of home isolation in the first quarter of last year on the use of mobile payments. The year-on-year growth rate of corporate service revenue has increased compared with the previous quarter, mainly due to the restoration of project deployment, enterprise software and online video customers Driven by the growth in demand for the company, and the corporate service revenue since the merger of Bitauto in the fourth quarter of last year.
But whether it is from the scale of revenue or the topic that the capital market is concerned about, games are still Tencent’s solid base. Tencent’s overall game revenue for the quarter was 53.4 billion yuan (including social network components), a year-on-year increase of 15%. If it is assumed that the deferred revenue changes are all from the game business, the game flow in this quarter is basically the same as the year-on-year. Increased user retention and willingness to pay for the game business of the company. The company’s total user activity and user consumption both achieved year-on-year growth.
Liu Chiping, President of Tencent, also mentioned in the earnings call that he hopes to create a game experience that users are willing to play for a lifetime by developing some globalized IP games, but this requires years of development. “In the next few quarters and years, we need to bring some games with huge budgets and long production cycles to the market.”
At the Tencent Game Annual Conference held a week ago, Tencent released about 60 game products in one go in three hours, expanding the game category to cover a wider group of players, allowing each segment There is more than one product on the track, and at the same time, the layout of the game as a “super digital scene” must be accelerated.
The financial report of Tencent also shows that in overseas markets, it is expected that the large investments in top personal computers, consoles and mobile game studios in the past will begin to contribute a variety of innovative games in the future.
Tencent also stated that whether it is before or during the epidemic, whether in emerging or developed markets, the number of global gamers is growing, and they are more willing to establish long-term relationships with their favorite games, so they have a high number of users. Retention rate. In particular, some domestically developed games, such as PlayerUnknown’s Battlegrounds, Call of Duty, etc., have also achieved success in the international market. These have become reasons and confidence for them to continue to increase investment, and increasing investment means More development resources will be invested in high-quality and continuously popular products, including experimental game development, game marketing promotion and release capabilities, and technology investment.
It can be said that Tencent’s gaming-oriented consumer Internet business focuses more on satisfying user experience, and establishes long-term relationships with users by providing high-quality content.Contact, this is also Tencent’s stable source of revenue. In the short term, the growth rate is limited, but it can provide sufficient financial support for the growth of the industrial Internet in the long term. At present, the game also carries the mission of Tencent’s overseas expansion and is the growth driver for Tencent’s next stage of international development.
02
From taboo to boldly revealing, Tencent’s first foreign investment strategy is proposed
A few years ago, Tencent might have some taboos from defining it as an “investment company”, but now Tencent has boldly revealed it.
At the beginning of 2019, Tencent announced its investment portfolio for the first time. In the past 11 years, Tencent has 700 companies worldwide, of which 63 companies are listed with a value of 500 billion yuan. At that time, Tencent also stated that the company would not reduce its investment. In the latest financial report, Tencent disclosed its investment strategy for the first time.
Ma Huateng, Chairman and CEO of Tencent, said: “We will increase investment in many areas, including corporate services and software, high-level industrialized games and short videos. In addition, we recognize our social responsibility and The opportunity to create significant social value through innovation. We believe that the recent strategic upgrade and the establishment of the Sustainable Social Value Business Unit will enable us to have more positive impacts on society.”
In the past few months, Tencent’s investment rhythm has also been quite intensive. According to the “Tencent Investment Data Report for the First Quarter of 2021” released by the Qicha Big Data Research Institute in April, Tencent had 103 investment events in the first quarter of this year, of which 38 invested in the entertainment field (31 in the game field), and corporate services 22 companies have invested in the field and 10 companies have invested in the education field. The financial report shows that Tencent’s investment in its associates in Q1 was approximately 323.1 billion yuan, an increase of 8% year-on-year. As of March 31, the fair value of Tencent’s investment in associates (listed companies) had reached 11.11.647 billion yuan, a year-on-year increase. An increase of 13.2%.
Faced with the issue of Tencent’s investment growth plan, Liu Chiping responded that he did not think that the first quarter could be regarded as a benchmark for investment growth. There has been an improvement. According to non-IFRS, the company’s equity holders should share in the first quarter. Earnings increased by 22% year-on-year, and we will invest part of the new profits in new business areas, from a volume perspective of 0%-22%.
Tencent stated that the global digital transformation is still in its early stages, and technological advancement will bring a lot of opportunities for Tencent’s consumer Internet and industrial Internet activities. Therefore, Tencent will actively increase investment and invest part of the incremental profit in 2021 in new opportunities.
This specifically includes: Tencent will strengthen its efficient office SaaS products and security software, as well as its partnerships with and investment in SaaS vendors and independent software vendors, so as to enhance Tencent’s efforts in healthcare, retail, and education.Up-selling and cross-selling capabilities in key verticals such as education and transportation. In the game field, Tencent is increasing its investment in game development, especially focusing on large-scale and highly industrialized games that can attract global users. At the same time, Tencent is also further investing in new game types that can serve more different target audiences, establishing its IP and cross-media linkages, and investing in advanced technologies to provide next-generation gaming experiences, such as cloud games. In the field of short video content, Tencent is cultivating the content ecology of video accounts, connecting users with real life content, and allowing high-quality content creators to reach consumers. Therefore, Tencent will increase the production capacity of self-made content to further expand the IP content library and provide video materials that can be adapted by creators.
In terms of specific investment methods, Liu Chiping said that he would arrange the investment scale in the order of enterprise service, games and video. For example, the investment cycle of enterprise service is relatively long, and the strategy is to expand the scale first, and then commercialize; games; The performance of the video is relatively fast, and the investment is mainly in the development stage. At this stage, there is not only no revenue, but also the corresponding cost; video needs a growing number of users to improve product quality, optimize operations and tools, and there are commercial delays in advertising. problem.
In December last year, the Central Economic Work Conference clarified eight key tasks in the economic work in 2021. “Strengthening anti-monopoly and preventing the disorderly expansion of capital” was listed as one of them, mainly aimed at domestic capital in recent years. It focuses more on the realization of traffic and does not pay attention to the problems of originality and basic innovation. Tencent also disclosed in its financial report, “Some investment companies have invested in new projects such as community group buying business, which have caused greater losses for associated companies. On the whole, we believe that China’s Internet industry is in the stage of large-scale investment, and we are in this period. Maintained stable operations and financial performance.”
03
Investment to promote investment, Tencent will start again after two and a half years
The bigger the company, the greater the responsibility. If you want to find an intersection and a point for Tencent’s consumer Internet and industrial Internet, then this financial report gives a clear answer.
On April 19 this year, Tencent officially announced the company’s strategic upgrade through a letter to employees, taking “rooting the consumer Internet, embracing the industrial Internet, and promoting sustainable social value innovation” as the company’s grand strategy. In this round of adjustments, Tencent has established a brand new Sustainable Social Value Business Unit (SSV) under the corporate development business group CDG, and will invest 50 billion yuan in sustainable social value innovation, including basic science, education innovation , Rural revitalization, carbon neutrality, FEW (food, energy and water), public emergency, senior care technology, and public welfare digitalization.
In this financial report, Tencent emphasized that by adding a sustainable social value business unit to integrate corporate social responsibility and public welfare activities, the first phase of investment of 50 billion will come from investment income. This upgrade is aimed at implementationThe mission of “Technology for Good” marks a new stage of development for the company.
To sort out Tencent’s development since its establishment. In 2005, 2012, and 2018, Tencent has undergone three major strategic upgrades and structural adjustments. The common point is that they are all driven by business development and have laid the foundation for Tencent’s current development. The fourth adjustment in April this year is more due to social values and social responsibilities. Not only the adjustment interval is shorter, but also the momentum is stronger. This is related to the development stage of the company and is more related to the current Related to the new development pattern of the country.
In Tencent’s vision, social value innovation will lead all Tencent’s core businesses in the future. In the specific business, Tencent continues to consolidate its ToC business to serve WeChat and QQ users; on the other hand, it expands its ToB business, develops Tencent Cloud, and provides digital technology services for various industries, especially helping the digital transformation of the physical industry. As Ma Huateng said before, this is not a whim, it is a necessary stage in the development of the enterprise. “Sustainable social value innovation will, together with the consumer Internet and the industrial Internet, become the base of all our future businesses. If this base is not deep enough, the top will not grow big, and the ceiling will definitely be a problem. If an enterprise develops There is no reasonable ratio between the contributions made, and it is impossible to grow upward. This is the objective situation we have seen.”
In terms of the specific investment plan of the Sustainable Social Value Business Unit, Tencent stated that the expenditures of the new business unit are arranged in the same way as the company’s donations, and they are likely to be treated as non-profits like investment income. IFRS adjustments, these contributions will also be included in other income items. Regarding the timing of funding, once the infrastructure is completed, the first part of the investment will be injected, usually once or twice a year depending on the project.