- 2024-10-22
- News
"Daily Profits Hit $300M! Tencent's Q4 Revenue Up 7%, Net Profit Plummets 75%"
Tencent is the most valuable listed company in China. Tencent Holdings, listed on the Hong Kong Stock Exchange, currently has a market value of 2.7 trillion Hong Kong dollars, and it once even exceeded 6 trillion Hong Kong dollars. Every time Tencent releases an announcement, it attracts market attention, as everyone wants to see how profitable the company with the highest market value in the country is.
After the Hong Kong stock market closed on March 20, Tencent Holdings announced its financial report for the fourth quarter of 2023. Upon carefully reviewing the core financial data, it was surprising to find that while Tencent's profitability remains strong, its net profit plummeted in the fourth quarter despite year-on-year revenue growth. What happened? Let's look at the specific data.
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Operating income slightly increased, while net profit plummeted
From October to December 2023, Tencent Holdings achieved an operating income of 155.17 billion yuan, a year-on-year increase of 7% and a slight sequential increase of 0.4%. Tencent's operating income has remained relatively stable, and the high growth that was once seen is now hard to find among several traditional internet giants.
In terms of net profit attributable to the parent company, Tencent earned 27.03 billion yuan in the fourth quarter of 2023. Although it achieved an average daily profit of 300 million yuan, which is enviable for more than 99.99% of companies in the country, it was a significant 75% decrease compared to the 106.27 billion yuan in the same period last year, and a quarter-on-quarter decrease.
Where did Tencent's money go? Why did revenue increase while profit decreased?
Looking solely at the net profit indicator, Tencent's performance from October to December last year was not only poor but could be described as "terrible," with a nearly 80% year-on-year decline. Although operating income increased, the actual money earned was less, which could be due to a crazy increase in operating costs or other reasons.
Upon further observation of Tencent's fourth-quarter report, we can find that there is a project called "Investment income/Net amount and others" in the profit and loss statement that is very prominent. The value for the fourth quarter of 2023 was -6.73 billion yuan, while in the fourth quarter of 2022 it was 85.08 billion yuan, a significant difference and the "culprit" behind Tencent's net profit plummet in October-December last year.
This report item records investment gains and losses unrelated to the main business. Similar to how our main income as "working people" is from salaries, some friends may engage in stock trading or financial management, and the income and losses from these activities are reflected in this report item. The reason why Tencent's "Investment income/Net amount and others" was so high in the fourth quarter of 2022 was because the company recognized the disposal of its Meituan equity at the time, bringing in a profit of 106.6 billion yuan.
If we only consider matters related to operations, we need to look at the net profit under the non-IFRS system. In the fourth quarter of 2023, Tencent recorded 42.68 billion yuan, a year-on-year increase of 44%, which is not a case of "increasing revenue without increasing profit."Underperformance against expectations is a fact, with a decrease in gaming business revenue.
Before the release of the fourth quarter report, the market expected Tencent's operating income to be 157.42 billion yuan. The actual operating income was more than 2 billion yuan less than this figure, failing to meet expectations. In the short term, this will undoubtedly have a negative impact on Tencent's stock price, representing an unfulfilled high revenue expectation.
The "culprit" behind Tencent's revenue not meeting expectations should be its most important value-added services within its three major business segments. From October to December 2023, value-added services brought in 69.08 billion yuan in operating income for Tencent, lower than the 70.42 billion yuan in the same period of 2022.
Looking more closely, value-added services are divided into three sub-businesses: overseas games, domestic games, and social networking. It is well known that games are Tencent's "cash cow," and any changes in this business will have a significant impact on the company's overall performance.
In the fourth quarter of 2023, domestic game revenue was 27 billion yuan, a decrease of 3%; international game business revenue was 13.9 billion yuan, which decreased by 1% after excluding the impact of exchange rates. Tencent has been expanding into the international market, with global game revenue increasing continuously except in China, but there was a decline in the fourth quarter of last year. This undoubtedly serves as a reminder that it is starting to encounter bottlenecks in the international market. How to break through and whether there is still room for breakthroughs requires solutions from Tencent and is also a concern for investors.
Revenue from social networking within value-added services also declined by 2%, achieving a total operating income of 28.2 billion yuan.
Increased repurchase amount, Tencent has the ability to manage market value.
Another piece of news revealed in Tencent's fourth quarter report is the plan to double the repurchase scale this year, increasing from last year's 49 billion Hong Kong dollars to over 100 billion Hong Kong dollars. Share buybacks have always been seen as good news for two reasons.
First, it demonstrates the company's financial strength to the outside world. Repurchasing shares requires real money, and cash is the most valuable resource for listed companies. Willingness to spend money on share buybacks indirectly indicates that the company is not short of money, not only having enough funds to develop its business but also having the capacity to repurchase shares.
Second, if the repurchased shares are retired, it will directly increase the stock price. After Tencent repurchases shares, they can be used for equity incentives or directly retired. If the latter is adopted, the company's total share capital will decrease, and the net profit and net assets attributed to each share will increase. The intrinsic value of the stock rises, and the stock price naturally follows suit.Regardless of the willingness to repurchase company shares, it indicates that Tencent hopes to achieve something in terms of stock prices by 2024. The currently hot company Nvidia is keen on repurchasing shares, which is a responsible move towards investors. Of course, as mentioned earlier, not every listed company has such capability. Having sufficient cash reserves is the confidence to repurchase shares. Tencent's account balance of more than 350 billion yuan in fixed deposits and cash is obviously sufficient.
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