Game recovery boosts Tencent’s quarterly profit

Sometimes described as the world’s largest games company in terms of revenue, China’s Tencent increased its net profit by 47% in the three months from July to September. The profits were driven by both the domestic and international games activities.

Beyond games, Tencent is China’s largest social media company, thanks to its ubiquitous WeChat/Weixin messaging platform and largest long-form video streamer (Tencent Video and WeTV). In the music sector, Tencent is China’s largest music streamer and owns significant investment stakes in both Spotify and Universal Music Group.

For the third quarter of the current year, the group reported revenues of RMB167 billion ($23.9 billion), up 8% year-on-year. Net profit was RMB54 billion ($7.7 billion), leaving a net cash position of $13.6 billion (even after share buybacks).

International gaming revenues reached RMB14.5 billion, up 9% year-on-year (or up 11% at constant exchange rates), thanks to the robust performance of games like “PUBG MOBILE” and “Brawl Stars.” “Revenue growth for International Games materially lagged gross revenue growth as improved retention rates for certain titles led us to extend revenue deferral periods,” the company said. Gaming revenues in China rose 14% year-on-year to RMB37.3 billion, driven by games such as ‘VALORANT’, ‘Honour of Kings’, ‘Peacekeeper Elite’ and ‘DnF Mobile’.

Evergreen games, “Naruto Mobile” and “VALORANT” reached new highs in quarterly average daily average users (DAU). It launched ‘Delta Force’, the company’s first multi-platform first person shooter, which delivered high average daily time spent and high user retention rates.

In international markets, VALORANT expanded from PC to PlayStation and Xbox with the launch of the console version in five key international markets. The game’s gross revenues rose more than 30% year-over-year during the quarter.

Long-form video subscriptions rose 6% year-over-year to 116 million, after switching to a calculation based on daily subscriber counts. It attributed the growth to “popular animated series and drama series.”

The digital music activities, Tencent Music Entertainment announced its financial performance on Tuesday. As a result, streaming music subscriptions increased by two million to 119 million and at the same time average revenue per user increased. The still lucrative social music entertainment activities (karaoke and live streaming) reported little change in subscription numbers, but suffered a 25% decline in revenue per user.

Tencent’s earnings statement confirmed that the booming prospects for its value-added services business were “partially offset by a decline in music and games-related livestreaming revenues.” This reflects a regulatory environment that has increased scrutiny of live entertainment and made it more difficult to sell.