1. Review of 21Q4: Game reserves are abundant, advertising is under pressure in the short term, and cloud business maintains good growth
(1) 21Q4 performance overview
The company achieved revenue of 144.188 billion yuan in 2021Q4 (+8% year-on-year, +1% month-on-month), with a gross profit margin of 40.1% (-3.9% year-on-year, -4.0% month-on-month); the company achieved IFRS net profit of 94.958 billion yuan (YoY+60%) , QoQ+140%), Non-IFRS net profit of 24.880 billion yuan (-25% year-on-year, -22% month-on-month), short-term performance is under pressure.
(2) Value-added service business: In 2022, the game reserves will be abundant, and the video and music membership will grow steadily
In 2021Q4, the company’s online game business revenue was 42.8 billion yuan (+10% year-on-year, -5% month-on-month), social network revenue was 29.1 billion yuan (+4% year-on-year, -4% month-on-month), and the number of paying users of value-added services was 236 million (year-on-year + 7.7%, month-on-month +0.4%), of which video paid members reached 124 million (year-on-year +1%), and music paid members reached 76 million (year-on-year +36%).
(3) Advertising business: short-term growth is under pressure, and it is expected to resume healthy growth in the future
In 2021Q4, the company’s overall online advertising revenue was 21.518 billion yuan (-13% year-on-year, -4% month-on-month), of which social advertising revenue was 18.3 billion yuan (-10% year-on-year, -4% month-on-month), and media advertising revenue was 3.2 billion yuan (-25% year-on-year). %, month-on-month -7%).
(4) Fintech and enterprise services: Cloud and enterprise services business targets high-quality growth, and profit margins are expected to be optimized
In 2021Q4, the revenue of financial technology and enterprise service business was 47.958 billion yuan (+25% year-on-year, +11% month-on-month). The increase in the scale of commercial payment drives the growth of payment revenue; the cloud business maintains good growth, and will pursue higher-quality growth at the IaaS and PaaS levels in the future, and the profit margin is expected to continue to improve.
2. Prospects for 22Q1: Games are in line with expectations, advertising will continue to be under pressure in the short term, and cloud business growth strategy has shifted
(1) Value-added service business: game performance is in line with expectations
Guohai Securities believes that due to the impact of the high base last year, the quarterly turnover of domestic games is under pressure year-on-year, and it is expected that the impact of the anti-addiction policy for minors will be fully digested in the second half of 2022. According to Sensor Tower data, Tencent’s mobile games “Honor of Kings” and “PUBG Mobile” (including Peace Elite) ranked the top two in the global mobile game revenue list with US$735.4 million and US$643 million respectively in the first quarter; The performance of “Return to the Empire” is in line with expectations. The re-issue of the game version number has released a positive signal for the industry, and a variety of games with existing version numbers will be released to contribute incrementally this year.
In addition, Tencent Video has a rich reserve of high-quality dramas and variety shows. The recently announced membership price adjustment is expected to bring greater income flexibility; the video account strengthens content operations, and high-quality content continues to increase user appeal; Tencent Music announced that it will return to Hong Kong for a secondary listing, and the QQ Music APP The metaverse will be explored.
(2) Advertising business: Continue to be under pressure in the short term, and the commercialization of video accounts is worth looking forward to
According to the company announcement, as of December 2021, the number of WeChat advertising ecological partners has reached 1.1 million, with a share of 7 billion, the number of WeChat ecological advertisers has increased by 25%, and the eCPM of video advertising has increased by 20%. Against the background of repeated epidemics and a weak macro consumption environment in the first quarter, the willingness of advertisers to put in is low. China Merchants Securities believes that the advertising business will continue to be under pressure in the short term, but the commercialization process of WeChat ecology, especially the commercialization of video accounts, has landed. It is expected to bring incremental growth to the company in the long run.
(3) Fintech and enterprise services: The growth strategy of cloud business has shifted, and financial attention has been paid to the implementation of supervision
Shenwan Hongyuan believes that Tencent’s cloud business will shift from focusing on growth scale to focusing on growth quality. Due to the limited market space outside the government and enterprises, the development of the government and enterprise market takes time, and the impact of the epidemic is superimposed, it is expected that Q1 will start to slow down. However, in the medium term, the cloud business still has strong growth potential, and the monetization of corporate WeChat and Tencent conferences is worth looking forward to. The financial business has entered a period of stable development, and the follow-up will mainly focus on the implementation of financial technology-related regulatory measures.
3. 22Q1 performance expectations
According to Bloomberg’s expectations, Tencent Holdings’ 22Q1 revenue was 141.058 billion yuan, a year-on-year increase of 5.5%; adjusted net profit was 26.493 billion yuan, a year-on-year decrease of 20.4%.
Data source: Bloomberg
References
CITIC Securities “Tencent Holdings – 0700.HK – 2021 Fourth Quarter Performance Review: Short-term performance is under pressure, quality and efficiency improvement is expected to maintain healthy development in the future”
Guohai Securities “Tencent Holdings-0700.HK-2022Q1 Financial Report Prospect: Game and Advertising Business Under Pressure, Fundamentals Expected to Improve in the Second Half of the Year”
Shenwan Hongyuan (Hong Kong) “Tencent Holdings-0700.HK-1Q22 Prospect: There is still pressure in the short term, improvement in the second half of the year, outstanding mid- and long-term value for money”
China Merchants Securities “Tencent Holdings-0700.HK-2022Q1 Performance Prospect: The Company’s ToB Business Resilience Highlights Under the Impact of the Epidemic”
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