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Tencent’s online ads revenue grows for the primary time since 2021

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Chinese tech giant Tencent released quarterly results Wednesday.

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BEIJING — Chinese tech giant Tencent reported better-than-expected quarterly revenue on Wednesday, helped by growth in ads inside its growing “video accounts” business.

Overall revenue for the quarter ended Dec. 31 got here in at 144.95 billion yuan ($21.07 billion), higher than the 143.89 billion yuan estimated by FactSet.

Tencent’s internet marketing revenue overall grew by 15% to 24.7 billion yuan, beating a FactSet estimate of twenty-two.18 billion yuan — and growing for the primary time because the second quarter of 2021. The corporate said most ad spend got here from e-commerce corporations, fast-moving consumer goods and games.

Video accounts sit throughout the WeChat messaging and social media app and are a way for people and businesses to share short videos and livestreams on the platform. Average monthly users of WeChat in China and overseas rose by 3.5% from a 12 months ago 1.31 billion accounts within the fourth quarter.

Ad spending

In-feed ads for video accounts generated greater than 1 billion yuan in revenue within the fourth quarter, Tencent said. It said user time spent on video accounts was greater than 1.2 times that spent on WeChat Moments, which is analogous to Facebook’s News Feed.

“This promoting unit allowed them to unlock revenue coming from e-commerce, which has done pretty much,” James Lee, U.S. and China web analyst at Mizuho Securities, said on CNBC’s “Squawk Box Asia.” He has a neutral rating on Tencent and a price goal of 400 Hong Kong dollars.

Shares of Tencent in Hong Kong were trading 5% higher on Thursday, at HK$366.40.

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Tencent

WeChat also has mini-programs that allow users to purchase products from merchants throughout the app. Tencent said user time spent on mini-programs roughly doubled within the fourth quarter to also exceed that spent on Moments — generating “several trillions” yuan of gross merchandise value last 12 months.

GMV measures total sales value over a certain time frame.

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That level of GMV makes Tencent “one in all the biggest e-commerce platforms” that the corporate is beginning to monetize, Lee said. “I believe that has a excellent potential going forward.”

Tencent didn’t disclose exact GMV figures. It was unclear how the numbers in comparison with Alibaba, which generated 540.3 billion yuan in GMV during its annual shopping festival in November 2021, the newest figures available.

Promoting expenditure is commonly an indicator on economic sentiment.

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Firms selling lower priced goods are “seeing a broad-based recovery already,” Tencent Chief Strategy Officer James Mitchell said on an earnings call. “For corporations that sell higher-ticket priced items, it varies category-by-category.”

He said those merchants and advertisers generally expect consumption to choose up later this 12 months. Many video account viewers don’t use existing short-video apps corresponding to Kuaishou or ByteDance’s Douyin, Mitchell said.

Nonetheless, ads still account for lower than one-fifth of Tencent’s overall revenue — which barely grew within the fourth quarter and fell for all of 2022 as Covid controls dragged down economic growth.

Revenue sources

The biggest revenue segment, which incorporates the large gaming business, fell by 2% to 70.4 billion yuan within the fourth quarter, consistent with FactSet estimates for 70.2 billion yuan. In April 2022, Beijing began to recurrently approve recent game titles again after a hiatus of greater than six months.

Tencent’s second-largest revenue source, financial technology and business services revenue fell by 1% to 47.2 billion yuan, below FactSet estimates for 49.49 billion yuan.

“FinTech Services revenue growth was slower than the previous quarter because of COVID-19 outbreaks temporarily suppressing payment activity,” Tencent said in a release. “Business Services revenues decreased year-on-year as we scaled back loss-making activities.”

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For the primary three months of 2023, day by day average business payment volume rebounded by double-digits from a 12 months ago as consumption recovered, the corporate said.

Because the regulatory environment in China “normalizes,” the corporate sees opportunities to develop financial products corresponding to in wealth management, loans and insurance over the long run, Martin Lau, executive director and president, said on the earnings call.

Earnings per share for the quarter were 3.04 yuan, barely higher than FactSet expectations of three yuan. That is on a non-International Financial Reporting Standards basis, much like the “non-GAAP” (Generally Accepted Accounting Principles) standard utilized in the U.S.

Opportunities in A.I.

Tencent didn’t share many details on the way it plans to implement artificial intelligence within the wake of OpenAI’s wildly popular ChatGPT chatbot, although the corporate said it expected to launch a chatbot at some unspecified point.

Lau said on a separate call with media he expects artificial intelligence could be an “necessary amplifier” for future growth, particularly in AI-generated content, but solid the corporate’s work within the tech as still in early stages.

Tencent is developing a big artificial intelligence “foundation” model called Hunyuan.

“The inspiration model is something we have now been developing since last 12 months,” Lau on the decision with reporters. He didn’t comment on ChatGPT or Baidu‘s Ernie bot, which was launched last week.

“It’s way more necessary for us to do it right than to do it fast.”

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