Investors of Tencent should be breathing a sigh of relief after going through Tencent’s Q4’22 and FY’22 results.
The key anchor of Q4’22 is finally a YoY growth spurt that has been absent in the last 2 quarters of 2022 and better profits
The big picture looks promising. But will the nitty gritty details paint a clearer picture of Tencent’s prospects?
1. Q4’22 Value-added Services down by 2% YoY
Value-added services, where Tencent parks its Social Networks and Games business, are down by -2% YoY for Q4’22.
It is mainly dragged down by Domestic Games, which got badly affected during the game launch freeze by the Chinese government. The ban lasted as long as 14 months and pretty much impaired Tencent’s performance for 2022.
Fortunately, International Games helped to buffer the domestic gaming ban, with the strong performance of Tencent’s key game franchises like League of Legends, VALORTANT, PUBG Mobile, and Call of Duty Mobile.
2. Q4’22 Online advertising jumped by 15% YoY
Tencent’s Online Advertising revenue is definitely the shining performer in this quarterly results.
For Q4’22, it grew by +15% for both YoY and QOQ. After 4 quarters of shrinkages, advertising finally posted growth for its topline.
Advertiser demand improved, on top of Tencent’s transaction drive capability in its advertising ecosystem. Enhanced conversion rates and returns on investments for advertisers drove the growth of online advertising.
Not to also mention, Video Accounts’ growth has also contributed to more in-feed ad as well.
3. FinTech poised to recover post-COVID-19
Commercial payment volume declined during China’s prolonged COVID-19 outbreaks. Nevertheless, as it slowly reopens, green shoots of recovery can be seen already.
Gross margins for this segment are still improving, as increasing focus on healthier margin self-developed PaaS help beefed up the gross margins.
4. Lower operating expenses help lifts net profit
Most of Tencent’s net profit was the result of optimizing its operating expenses. Sales and marketing expenses for Q4’22 dropped -47% YoY and -14% QoQ.
The slashing of its sales and marketing expenses was partially offset by higher R&D and General and Administrative expenses, both of which grew +18% YoY on an FY’22 versus FY’21 basis.
A strong commitment to increasing its R&D expenses, even in a climate where Tencent’s US tech counterparts are slashing costs and laying off employees, might paint some prospects for the company.
Definitely a set of resilient results that suggest Tencent’s prospects
Compared to Alibaba’s results, Tencent’s results are much more promising.
While segments affected by COVID-19 and the government clampdown starting to recover, Tencent proved resilient with plenty of segments that have helped buffered their overall FY 2022 results.
The optimization of its operating expenses, on top of a clear recovery in view, should be a sign of better upcoming quarterly results and prospects.
Tencent’s ecosystem and AI capabilities have never been glamorous compared to Apple’s. Its walled garden might only be effective in China.
But do take note.
This is a company that has iterated and innovated since its founding. It might be a laggard in short video streaming compared to Douyin and Kuaishou, but given enough time, it too can come out with its own Video Account.
Perhaps in an age where hyper-growth is no longer an obsession and the race to profitability beckons, maybe highly profitable and stable tech companies like Tencent will shine once again?
Food for thought!
