Gaming Surge, Fintech Slump: Tencent’s Uneven Q3 Performance

Tencent Holdings, China’s tech behemoth, released its third-quarter results for 2024 on November 13. The company’s performance reflected the broader economic challenges facing China.

Tencent reported revenue of 167.19 billion yuan ($23.1 billion), an 8% year-on-year increase. This figure fell slightly short of analysts’ expectations of 167.82 billion yuan.

Despite the revenue miss, Tencent’s net income saw a significant boost. The company’s profit attributable to shareholders jumped 47% to 52.23 billion yuan.

This surge in profitability came amid a sluggish Chinese economy grappling with various issues. China’s economic woes have persisted throughout 2024.

The country faces a property market crisis, high youth unemployment, and weak consumer spending. These factors have contributed to a challenging business environment for companies like Tencent.

Tencent’s gaming division showed resilience in the face of these challenges. Domestic game revenue grew by 14% to 37.3 billion yuan. Popular titles such as Valorant and Honour of Kings drove this growth.

Tencent’s Financial Performance

The international gaming segment also performed well, with revenue increasing by 9% to 14.5 billion yuan. The company’s advertising business outperformed expectations. Revenue from this segment rose 17% to 30 billion yuan.

This growth came despite the overall weakness in China’s advertising market. Tencent’s short-video function “Channels” within WeChat played a key role in this success.

However, Tencent‘s fintech and business services segment struggled. This division, which includes WeChat Pay, saw only a 2% growth to 53.1 billion yuan.

The modest increase reflects the weak consumer spending trends in China. Tencent has responded to these challenges by focusing on cost control and efficiency.

The company has streamlined operations and cut non-core businesses. It has also invested strategically in high-growth areas, particularly AI and cloud computing.

The Chinese government has attempted to stimulate the economy through various measures. In September 2024, Beijing announced fiscal stimulus packages aimed at boosting consumer spending. These efforts include increased government spending and tax cuts for businesses.

Insights from Martin Lau

Tencent’s President, Martin Lau, commented on these government initiatives during the earnings call. He noted that while the direction is positive, the timing of economic recovery remains uncertain.

Lau expressed long-term confidence in China’s economic prospects. The company‘s e-commerce strategy within WeChat has shown promise. Gross merchandise value on WeChat mini programs grew to over 2 trillion yuan in Q3 2024.

This growth came from improved coverage of various services, including food ordering and medical services. Tencent has also been actively managing its capital structure through share buybacks.

The company announced plans to double its share repurchases to over 100 billion Hong Kong dollars in 2024. As of the Q3 report, Tencent had completed over 90% of this target.

Despite these efforts, Tencent’s stock price has been volatile. After surging in early October 2024, the share price has since declined. It closed at HK$403.8 on the day of the earnings release.