As an old tree, how to sprout new buds is a "big problem" mentioned by Tencent founder Ma Huateng at the annual meeting of Tencent in January 2024. Where is Tencent’s next growth direction? Which businesses will be Tencent’s "new shoots"?
On the afternoon of March 20th, Tencent released its fourth quarter and full-year financial report for 2023. Compared with the decline in revenue and net profit in 2022, Tencent’s performance in 2023 changed. The financial report shows that Tencent’s revenue in 2023 was 609 billion yuan, a year-on-year increase of 10%. The annual NON-IFRS (non-international accounting standards) net profit was 157.69 billion yuan, a year-on-year increase of 36%.
The performance recovery benefited from the improvement of the overall environment. But for Tencent, 2023 is a relatively dull year. Unlike Alibaba, it did not undergo a large-scale restructuring, nor did it drastically cut off some businesses with uncertain profits like ByteDance. In the fiery field of AI (artificial intelligence), Tencent is not as radical as Baidu. It was not until the second half of 2023 that the Hundred Models War came to an end that Tencent launched the mixed model of Tencent.
In the plain, Tencent’s business has a tendency to slow down. The game business that contributed a lot to Tencent’s revenue did not launch explosive products in 2023. On the contrary, its competitor Netease became an "explosive manufacturing machine" in this year. The cloud business that carries the hope of Tencent’s industrial Internet will further reduce its market share in 2023. The video number, which is regarded as Tencent’s "hope of the whole audience", has led the growth rate of online advertising business revenue, but its commercialization is not outstanding.
By 2024, Tencent is 26 years old, and its largest number of users, WeChat, is 13 years old. As an old tree, how to sprout new buds is a "big problem" mentioned by Tencent founder Ma Huateng at the annual meeting of Tencent in January 2024. Where is Tencent’s next growth direction? Which businesses will be Tencent’s "new shoots"? On the evening of March 20th, Tencent founder Ma Huateng and Tencent President Liu Chi were interviewed by media including Economic Observer. After Ma Huateng introduced Tencent’s overall performance and business performance in 2023, Liu Chiping gave specific answers to these questions.
Game adjustment realization mode
At Tencent’s annual meeting in 2024, Ma Huateng’s evaluation of tencent games was very direct: friends kept producing new products, and we felt as if we had made no achievements.
Games are one of Tencent’s core businesses, accounting for nearly one-third of its total revenue. In 2023, tencent games’s business income was 179.9 billion yuan, a year-on-year increase of 5.4%. Among them, domestic game revenue was 126.7 billion yuan, a year-on-year increase of 2%.
Liu Chiping said that the performance of Tencent’s domestic games was slightly weak, mainly because the user bases of the glory of the king and Peace Elite were solid, but they were not attractive to users in commercialization.
He mentioned that he hoped to have more innovative and a more reasonable way of commercialization, so he made some adjustments to the team of Peace Elite. The pace of realizing the glory of the king will also be adjusted. Previously, the promotion of the glory of the king focused on the Spring Festival, and the promotion activities will be evenly distributed in 2024, which is conducive to the improvement of the annual income.
The glory of the king and Peace Elite are Tencent’s highest-paid game products, both of which have been online for more than 6 years.
In 2023, Tencent also launched a number of new games, but it did not contribute much to Tencent’s performance. In the first half of 2023, Tencent launched the survival theme mobile game "Dawn Awakening: Vitality" and the shooting mobile game "Metal Warhead: Awakening". After massive promotion, the revenue was less than expected. In the second half of 2023, Tencent launched two-dimensional games such as Aurora at White Night, Back to the Future: 1999, and Baijing Corridor. The income and word-of-mouth were not as good as that of Mihayou’s Collapse: Star Dome Railway, which was launched in 2023. At the end of 2023, Tencent had high hopes, and announced that the party game "Yuan Meng Xing", with an initial investment of 1.4 billion yuan and long-term investment without capping, was not as good as the "Egg Party" launched by Netease in 2022.
With regard to the performance of Dream Star, Liu Chiping mentioned that he was satisfied that Dream Star could reach 10 million DAU (daily active users). He believed that this is a long-term game, which is what tencent games is good at.
Will the performance of tencent games’s domestic business improve in 2024? Liu Chiping replied that it is expected to improve in the second quarter of 2024.
Compared with domestic business, Tencent management is satisfied with tencent games’s overseas business. In 2023, Tencent’s overseas game revenue accounted for 30% of the total game revenue, a year-on-year increase of 14%.
"Overseas (game) growth is very good." Liu Chiping said, especially in the global environment of slowing game growth, the performance of Tencent’s overseas games is far above average.
Video signal has great potential.
Since Ma Huateng first proposed that the video number is Tencent’s "hope of the whole audience" at the end of 2022, the outside world has been expecting the video number to exert its strength. By 2024, the video number is still highly anticipated by Tencent management.
Ma Huateng praised the development of video number at the annual meeting of Tencent in 2024. He said that the video number lived up to expectations, and there were many surprises in the growth process, which made Tencent regain a solid grasp in the case of short video failures in the past.
Liu Chiping also mentioned the video number many times in this interview. He believes that the video number will grow rapidly in 2023 and has great potential.
Tencent highlighted in the fourth quarter of 2023 and the annual financial report that the total user duration of video number will double in 2023. Liu Chiping said that there is a lot of room for growth in DAU (daily active users) and duration in the future.
Judging from the revenue data, the biggest contribution of video number is to drive the growth of online advertising business. Before the video number became "the hope of the audience", the revenue growth rate of Tencent’s online advertising business was not good. In 2021, Tencent’s online advertising business revenue was 88.6 billion yuan, an increase of 8% year-on-year; In 2022, Tencent’s online advertising business revenue was 82.7 billion yuan, a year-on-year decrease of 7%. In 2023, Tencent’s online advertising business revenue was 101.5 billion yuan, with a growth rate of 23%.
However, it should also be noted that there is still a big gap between the commercialization of video numbers and those of Aauto Quicker and Tik Tok, which have already matured in commercialization.
In the second quarter of 2023, Tencent disclosed in the financial report that the advertising revenue of video number in the quarter was 3 billion yuan. According to the calculation of Guohai Securities, the total advertising revenue of video number in 2023 is about 13 billion yuan. However, both of them are short video platforms. In 2023, Aauto Quicker earned 117 billion yuan, including 60.3 billion yuan in online marketing service income (namely advertising income). Tik Tok is not listed. According to the Financial Times, ByteDance, whose main income source is Tik Tok, earned 864 billion yuan in 2023. In terms of advertising revenue, in 2023, The Information, a Silicon Valley technology media, reported that the advertising revenue of Byte in 2022 reached about 10 billion US dollars (about 68.9 billion yuan).
Compared with advertisements, the shortcomings of e-commerce commercialization of video numbers are more obvious, and the infrastructure and supply chain are not perfect. Take the staff organization as an example. In Tik Tok, there are thousands of employees in the e-commerce team alone, while there are only hundreds in the whole team. A WeChat service provider told reporters that WeChat is integrating the WeChat payment and video number teams to enhance the video number e-commerce capabilities.
Liu Chiping also mentioned that video number will gradually improve the ecology of live broadcast with goods, which he believes will greatly promote the commercialization of video number.
AI is the main force of future growth.
At the moment when AI is hot, although Tencent is a step late, it has not missed this hot spot. In September, 2023, Tencent launched the mixed model, and after two upgrades, it also launched the graphic video capability in March, 2024. Liu Chiping believes that AI is the main force for Tencent’s future growth.
At present, Tencent’s mixed meta-model has been applied in both B-end (enterprise or organization users) and C-end (individual users). The B-side mainly serves Tencent conferences, corporate WeChat, Tencent documents, etc., and has been tested in more than 400 businesses within Tencent.
According to a data released by Tencent in September, 2023, the number of paying users increased by five times compared with the same period of last year after Tencent Conference was connected to Tencent’s mixed model.
Tencent’s AI ability plays a more obvious role in advertising business. Ma Huateng mentioned that the improvement of the advertising AI model has significantly improved the effect of accurate delivery. Liu Chiping also said that AI has generated a lot of profits in advertising, which is one of the important factors for the growth of Tencent’s advertising business.
Tencent mentioned in the fourth quarter and annual financial report of 2023 that "we upgraded the AI-driven advertising technology platform, which significantly improved the effect of accurate delivery, thus increasing advertising revenue".
In the interview, Liu Chiping also mentioned the application of Tencent’s AI capability in C-terminal, saying that in the future, different applets or apps (mobile phone application software) will be launched according to users’ needs, so that users can further use the mixed model. "We can look forward to it this year".
For the next step of the mixed model, he replied that the most important thing at present is to improve the base ability, such as improving the ability of Wensheng map and Wensheng video.