Thursday, March 28, 2024
 
Columnist
Martin Hennecke
 
TENCENT
HKEx Stock Code : 00700 
 
Corporate Profile
Principally engaged in the provision of Internet value-added services (¡§IVAS¡¨), mobile and telecommunications valueadded services (¡§MVAS¡¨), online advertising services and e-Commerce transactions services to users in the People's Republic of China (the ¡§PRC¡¨).

Business Review - For the year ended December 31, 2012

Communications Platforms

QQ IM, the largest online community in China, grew steadily in 2012. MAU reached 798 million at the end of 2012, representing a year-on-year growth rate of 11%, which was broadly in line with the Internet user growth rate in China. PCU increased by 16% year-on-year to 176 million. Driven by increasing adoption of the mobile Internet, our mobile user base grew more rapidly compared to our PC user base.

Weixin enjoyed substantial user growth in 2012, thanks to its innovative features and compelling user experience. It has quickly become a major communications and social platform for smartphone users in China. Beyond the domestic market, we have launched the product ¡§WeChat¡¨ which leverages Weixin's technology to serve the international markets. Recently, total registered user accounts of Weixin and WeChat have exceeded 300 million.

Social Platforms

Our leading social networks registered solid growth, with increase in the scale and activity of mobile users. MAU of Qzone increased by 9% year-on-year to 603 million at the end of 2012, while MAU of Pengyou increased by 22% to 247 million. Weixin Moments, a feature within Weixin which enables users to share experiences with friends on their Weixin contact lists, enjoyed rapid user adoption.

Media Platforms

In 2012, our media platforms expanded further with enhanced media influence and brand position. QQ.com maintained its position as the most-visited portal in China with solid traffic growth, leveraging the opportunities presented by the London Olympic Games. We also extended our vertical channels, such as news and finance, to the mobile Internet via vertical-specific smartphone applications. Tencent Microblog reached 87 million DAU at the end of 2012. As the growth of microblog users in China decelerates, we are exploring integration points between Tencent Microblog and Weixin to deepen our differentiation. Tencent Video gained significant audience share during the year riding on content enrichment and user experience enhancement, and has become one of the leading online video platforms in China in terms of unique visitors and video views.

IVAS

Our IVAS registered subscriptions count declined during 2012, primarily due to stringent measures we launched in the second quarter, which aimed to improve the quality of our subscriber base by cleaning up certain user accounts acquired through mobile channels, for whom fee collection was unlikely. To cater for users' increasing activity on mobile, we are enriching the mobile-related features and privileges of our IVAS subscription services.

We operate multiple open platforms providing third-party application developers with access to a large user base across our diverse product portfolio, including Qzone, QQ Game, and Tencent Microblog. In 2012, we increased significantly the number of third-party applications on our open platforms by collaborating with more developers and enhancing the support we provide to them. With increased user base and user activity, we achieved rapid growth in item-based sales within applications. To position for future growth opportunities, we are extending our open platforms to the mobile Internet and enriching our platforms with a greater diversity of applications.

Our online game business extended its domestic leadership, supported by growth in our major titles and contribution from self-developed titles launched during the year, including Legend of Yulong and Legend of Xuanyuan. We also achieved significant growth in international markets riding on the success of LoL. Our QQ Game Platform benefited from increased user activity and its PCU reached 8.8 million in the fourth quarter of 2012. In the future, we will focus on strengthening our market leadership by further enriching our game portfolio and by increasing our penetration into the web game and mobile game sectors. We will also continue to explore opportunities in international markets.

MVAS

In 2012, our MVAS business registered steady revenue increase, mainly driven by our bundled SMS packages and mobile games. In addition, mobile books registered strong revenue growth, albeit from a relatively low base.

During the year, we increased our focus on mobile games and expanded our game portfolio as we believe that the sector presents one of the key business opportunities on the mobile Internet. In addition, our mobile browser and mobile security product enhanced their market positions with significant user growth.

For certain key services such as QQ IM, Qzone and games, we managed the PC and mobile versions separately in the past. To deliver a unified user experience across platforms, we are now aligning the product development and management of these services between PC and mobile versions.

Online Advertising

Our online advertising business achieved strong revenue growth in 2012, underpinned by growth in brand display advertising and performance-based social advertising. In addition, search advertising registered growth.

In brand display advertising, we achieved healthy revenue growth and market share gains against a challenging macro environment. We also leveraged the London Olympic Games to better penetrate selected up-scale brand advertisers. Riding on the rapid user and traffic growth of Tencent Video, our online video advertising revenues grew strongly during the year. Traditional brand display advertising experienced solid growth along with increased traffic and the enhanced media influence of our platforms.

In performance-based social advertising, we benefited significantly from the launch of our targeted advertising system on social networks, which was well-received by advertisers such as e-Commerce companies and application developers. Supported by greater impression volume and improved click-through rates, performance-based social advertising has become a significant revenue contributor to our online advertising business.

In search advertising, we benefited from the rapid growth of e-Commerce search and new contributions from mobile search. We are in the process of revamping our search business and will focus on improving our basic search experience and operations.

e-Commerce Transactions

In 2012, we stepped up the scale of our B2C e-Commerce transactions business in certain product categories, such as consumer electronics, and registered significant growth in transaction volume. During the year, we expanded our geographical coverage and increased investments in logistics and fulfillment infrastructure. Our business structure was also re-organised to enable more focused and efficient management.

Although the e-Commerce industry is highly competitive, we believe that it is an appealing downstream opportunity to leverage our competitive advantages which include our massive logged-in user base, our existing billing and payment relationships with consumers, our insight into our users' interests, and our network's ability to enhance ¡§word-of-mouth¡¨ effect by users. Looking ahead, we will continue to expand our geographic presence in China, to improve user experience by investing in our business infrastructure and to explore new opportunities such as mobile commerce.

Business Outlook - For the year ended December 31, 2012

During 2013, we intend to:

- Extend our communications and social leadership from PC to smartphone via applications such as Wireless QQ and Weixin, and enrich user experience by integrating additional services into these applications. Such additional services may include content applications, games, and location-based activities, among others.

- Take advantage of the disruptive opportunities which the mobile Internet creates to expand our product range and reach with users beyond what we have achieved on PC. In China, we are investing aggressively in our mobile security software and mobile browser services. Internationally, we are stepping up our marketing investment to acquire users for WeChat.

- Serve our users relevant content, products, and advertising by making appropriately targeted recommendations at the right time and under the right circumstances. We believe our logged-in relationship with users, together with our users' desire to share experiences with friends via our communications and social platforms, will enable us to provide highly relevant recommendations and customisation, which represent competitive advantages in downstream activities such as e-Commerce, digital entertainment, and media content. We will continue to invest heavily in such downstream activities, including e-Commerce and advertising, so as to fully capture the revenue opportunities surrounding our platforms.

In view of the increasing integration between the PC and mobile Internet, we will combine the IVAS and MVAS segments in our financial reports and merge related revenue categories under IVAS and MVAS from the first quarter of 2013 onwards. We believe that this adjustment in financial reporting better reflects current market trends and our future business development.

Source: Tencent (00700) Annual Results Announcement
Chairman MA Huateng Issued Capital (shares) 1,857M
Par Value HKD 0.0001 Market Capitalisation (HKD) 663,789M
 
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