After the WeChat US ban, Tencent delivered a financial report that far exceeded expectations

After the United States issued executive orders to "ban" TikTok and WeChat, the overseas expansion path of Chinese Internet companies was cast into a shadow.

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The impact of the epidemic has not yet dissipated, and global turmoil has ensued. Against this backdrop, Tencent released its second quarter 2020 financial report today.

The financial report shows that Tencent's Q2 revenue was 114.883 billion, a year-on-year increase of 29%; net profit was 30.153 billion, a year-on-year increase of 29%, both exceeding market expectations.

The US ban will have little impact on Tencent's revenue. In tonight's earnings conference, Tencent stated that US revenue accounts for less than 2% of its global revenue.

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However, after India and the United States, the world's second and third most populous markets, closed their doors to Chinese Internet companies, Tencent may face greater challenges in Q3. Therefore, Tencent's growth in the domestic market has become particularly important.

• Will WeChat's commercialization pace accelerate further?
• Can Video Account become a short video product that Tencent can truly compete with Douyin and Kuaishou?
• Will the mobile version of DNF become the next "King of Glory"?

These issues are not only reflected in the numbers in the financial reports, but also the key to what Ma Huateng mentioned: "embracing emerging structural opportunities and meeting future challenges."

Advertising and social networking: WeChat is still the number one growth engine

The growth of national-level application WeChat is not over yet.

The financial report shows that in Q2, the combined monthly active users of WeChat and WeChat were 1.206 billion, a year-on-year increase of 6.5%. The number of monthly active accounts of QQ smart terminals was 647 million, a year-on-year decrease of 8.5%.

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Tencent owns the top two apps in China in terms of monthly active users, and its position in the social field is difficult to shake.

However, due to WeChat’s restraint, its commercialization potential has not been fully explored. Now WeChat is becoming the biggest growth engine for Tencent’s advertising revenue.

After Tencent redivided its advertising revenue into social advertising and media advertising in the past few years, the proportion of social advertising based on WeChat has continued to increase.

In the second quarter, Tencent's online advertising revenue was 18.552 billion yuan, of which 15.262 billion yuan was from social and other advertising, a year-on-year increase of 27%. In contrast, media advertising revenue fell by 25%.

Tencent's online advertising revenue growth hit a new low in Q2. The growth was mainly due to WeChat. Tencent also gave WeChat a very high evaluation in its financial report:

We believe that the WeChat ecosystem is redefining online advertising in China, allowing advertisers to build relationships with users in their private domains, such as official accounts and mini-programs, so that their advertising can effectively maintain long-term and loyal customer relationships, rather than just one-time advertising transactions.

Since 2020, WeChat has been less restrained in launching new features, with major updates released almost every month. Such frequent iterations have rarely been seen on WeChat since 2013.

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According to incomplete statistics from iFanr as of August 12, the major updates of WeChat since 2020 are as follows:

January

• WeChat removes 5,000 friends limit
• WeChat Mini Programs can be run on smart devices other than mobile phones
• WeChat public account gray test subscription account payment capability

February

• Video account function launched
• WeChat Mini Program Live Broadcasting Capability Launches Public Beta

March

• Dark mode is now available
• Added "Group Tools" and "Group To-Do" features
• Moments supports "jump to the position you haven't viewed yet"

April

• Gray test public account "album" function
• The public account is now sorted intelligently, and is no longer displayed by timeline.
• Public account "Message" supports multiple rounds of replies

May

• Mini Programs can be collected
• Added "Only Chat Friends" to the address book

June

• WeChat ID can be modified
• The video account has been revamped, adding three tabs: "Follow", "Friends", and "Popular"
• WeChat Tap function launched
• Added "Like" and "Share" buttons at the bottom of the official account

July

• Mini programs can be shared to Moments
• Video account comments are presented in the form of bullet screens
• New bullet screen function added to public account videos
• WeChat Mini Store Internal Testing
• Gray testing of the "label" function of public accounts

August

• Video accounts are no longer shared to Moments as links
• Video Account Assistant internal testing launched

It can be seen that WeChat’s updates focus on optimizing official accounts and mini-programs, and filling the lack of short content through video accounts.

Tencent said in its financial report that these updates have revitalized content consumption on public accounts, driving year-on-year growth in page views, while also causing transaction volume generated by mini programs to rebound month-on-month.

Although the data of Video Account was not disclosed in this financial report, Zhang Xiaolong mentioned in his circle of friends in June that the daily active users of Video Account have exceeded 200 million, and this growth rate far exceeds that of Douyin and Kuaishou.

According to the public data of Douyin and Kuaishou, it took Douyin 28 months to exceed 250 million daily active users, while Kuaishou, which began to transform into a short video platform in 2012, only exceeded 300 million daily active users at the beginning of this year.

It is undeniable that the huge user base of WeChat is an important reason for the rapid growth of Video Account, but what makes Video Account different from Weishi is that it shows a different form from mainstream short video products such as Douyin and Kuaishou. As an article in Shen Xiang said:

The product design of the video account breaks through the "living room" setting of WeChat. Users who are not friends can also communicate with each other, which essentially provides the possibility for extending weak relationships and leaves a foreshadowing of creating a public traffic "square" in the "living room" of private traffic.

Game Business: Can DNF Mobile Become the Next King of Glory?

The gaming business was the biggest contributor to Tencent's Q2 financial report exceeding expectations, with online game revenue growing 40% to RMB 38.288 billion, the highest growth rate since the fourth quarter of 2017.

"Honor of Kings" and "Peace Elite" are still the two main pillars of the gaming business, while the revenue from the PC game DNF "Dungeon & Fighter" continues to decline.

However, the revenue of the gaming business in Q2 decreased compared with the previous quarter, because a large part of the growth in the previous quarter came from the surge in the number of users staying at home due to the epidemic. Questmobile data showed that the online time of users of "Honor of Kings" and "Peace Elite" reached a historical high during Q1.

As work resumes in various places, such high growth is difficult to sustain. Many analysts believe that the growth of Tencent's gaming business in the next quarter will largely depend on the performance of the mobile version of DNF.

The DNF mobile game was originally planned to be officially launched today, but yesterday it was temporarily decided to delay the launch. In July, the number of reservations for the mobile game DNF has reached nearly 60 million, which shows the players' expectations for this mobile game.

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DNF was once the king of PC games. In 2011, its PCU (maximum number of concurrent online players) reached 2.6 million, setting a world record. That year, DNF contributed 30% of Tencent's gaming revenue.

Although DNF has been declining in recent years, the mobile version of DNF is still highly anticipated by players and is considered to have the potential to become the next "King of Glory". Analyst "Internet and Entertainment Phantom Thieves" even believes that:

The launch of the DNF mobile game will become the most important event in the Chinese and even global (gaming) industry in 2020, and it may even determine the growth rate of the entire industry on its own.

In addition, the epidemic that has not yet been fully controlled abroad may also bring Tencent similar growth as in Q1 in China. Among them, Valorant, a personal computer game released by Tencent, became the game with the longest viewing time on Twitch in the second quarter.

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The United States is the most important overseas market for Tencent's gaming business. Although it faces some risks, the current ban on WeChat does not involve the gaming business, so it will not be affected for the time being.

Paid membership: Strong promotion by the hit drama "Nothing But Thirty"

Similar to the gaming business, the growth rate of streaming video and music business slowed down in the second quarter after explosive growth in Q1.

The number of 114 million paid video members is basically the same as the 112 million in Q1, but at least it did not continue the downward trend of year-on-year growth for five consecutive quarters before Q1.

The growth of paid video members has always been linked to content. Tencent specifically mentioned the recent hit TV series "Nothing But Thirty" in its financial report. Even if you haven't watched this drama, you have basically seen many people on Weibo and Douyin scolding Xu Huanshan and Lin Youyou.

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The number of Tencent's music service members increased by 52% year-on-year to 47 million, and Jay Chou's contribution should be significant. Jay Chou released a new song "Mojito" on QQ Music in June, and the sales exceeded one million within one hour of its release, causing the QQ Music server to crash.

However, as the world's largest record company Universal Music has reached a non-exclusive licensing cooperation with NetEase Cloud Music and Tencent Music, Tencent Music's copyright advantage may decline, and the difficulty of attracting paying users will also increase accordingly.

Invest 500 billion to embrace industrial Internet

In addition to C-end business, Tencent, which announced its embrace of industrial Internet in the past two years, also performed well in ToB business. The revenue of financial technology and enterprise services business increased by 30% year-on-year to RMB 29.862 billion, setting the highest growth rate since the public disclosure of data.

In May, Tencent announced that it will invest 500 billion yuan in the next five years to further develop new infrastructure, which is also Tencent’s future strategic focus.

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In general, although advertising revenue declined in the second quarter due to the impact of the overall environment, WeChat still has a lot of room for commercialization. The newly launched WeChat Mini Stores may become the fourth pole of e-commerce, and the video account may give Tencent an opportunity to overtake in the weak short video field.

At the same time, after the rapid growth of the gaming business, the growth momentum in the post-epidemic period is largely expected to rely on the performance of DNF mobile games and overseas business.

Tencent, which was once criticized for being an investment bank and having no dreams, no longer seeks to "coexist rather than own" its partners. From Cheng Wu taking over Yuewen to the recent acquisition of Sogou and the promotion of the merger of Douyu and Huya, Tencent seems to be further strengthening its influence on this ecosystem.

The seeds that Tencent has planted in the fields of short videos, e-commerce, etc. have begun to sprout. It is worth paying attention to whether they can grow into towering trees in the future.