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

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

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

Tencent’s online advertising revenue overall grew by 15% to 24.7 billion yuan, beating a FactSet estimate of 22.18 billion yuan — and growing for the first time since the second quarter of 2021. The company said most ad spend came from e-commerce companies, fast-moving consumer goods and games.

Video accounts sit within the WeChat messaging and social media app and are a way for individuals 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 year ago 1.31 billion accounts in the fourth quarter.

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

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

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

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

GMV measures total sales value over a certain period of time.

That level of GMV makes Tencent “one of the largest e-commerce platforms” that the company is starting to monetize, Lee said. “I think that has a very good potential going forward.”

Tencent did not disclose exact GMV figures. It was unclear how the numbers compared to Alibaba, which generated 540.3 billion yuan in GMV during its annual shopping festival in November 2021, the latest figures available.

Advertising expenditure is often an indicator on economic sentiment.

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

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

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

The largest revenue segment, which includes the giant gaming business, fell by 2% to 70.4 billion yuan in the fourth quarter, in line with FactSet estimates for 70.2 billion yuan. In April 2022, Beijing started to regularly approve new game titles again after a hiatus of more 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 due to 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.”

For the first three months of 2023, daily average commercial payment volume rebounded by double-digits from a year ago as consumption recovered, the company said.

As the regulatory environment in China “normalizes,” the company sees opportunities to develop financial products such as in wealth management, loans and insurance over the longer term, Martin Lau, executive director and president, said on the earnings call.

Earnings per share for the quarter were 3.04 yuan, slightly better than FactSet expectations of 3 yuan. That’s on a non-International Financial Reporting Standards basis, similar to the “non-GAAP” (Generally Accepted Accounting Principles) standard used in the U.S.

Tencent did not share many details on how it plans to implement artificial intelligence in the wake of OpenAI’s wildly popular ChatGPT chatbot, although the company said it expected to launch a chatbot at some unspecified point.

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

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

“The foundation model is something we have been developing since last year,” Lau on the call with reporters. He did not comment on ChatGPT or Baidu‘s Ernie bot, which was launched last week.

“It’s much more important for us to do it right than to do it fast.”