May 13—Chinese multinational Tencent Holdings Ltd. posted a 26 percent upswing in first-quarter revenue due in large part to a surge in mobile gaming sales. The conglomerate also recorded better-than-expected results for its online advertising and financial technology revenue.
However, the brand predicts it will face sales challenges in the second quarter as the world begins to recover from COVID-19.
Games Drive Growth
Tencent made ¥108 billion ($15.2 billion) in Q1 2020 compared to sales of ¥85.4 billion ($12.04 billion) in Q1 2019. In addition to substantially increasing its March intake from last, the corporation also outpaced Refinitiv’s consensus estimate by 6.5 percent. The company’s prediction-beating results are due to the over-performance of three key segments despite the impact of the pandemic.
The conglomerate’s online gaming unit generated ¥37.3 billion ($5.26 billion) in the first quarter, an annual increase of 31 percent. The division’s robust sales largely came from a surge in mobile games revenue, which totaled ¥34.7 billion ($4.89 billion). The firm attributed the rise in sales to players increasing their usage out of self-quarantine prompted boredom.
Bloomberg reports Tencent’s video game earnings hit a three year high last period.
Microsoft, Nintendo, and Sony also experienced significant spikes in online gaming activity ascribable to COVID-19. Tencent benefited handsomely from the trend because its library includes domestic hits like “Honor of Kings” and “Peacekeeper Elite” and international smashes like “PUBG” and “League of Legends.” The company’s mobile titles generated so much income last quarter, they offset declines in desktop gaming revenue brought about by the closures of Sino internet cafes.
Booming Online Advertising and Fintech Business
Tencent also experienced a big improvement in its online advertising revenue due to the spread of COVID-19. The unit earned ¥17.7 billion ($2.50 billion) in the March period, a 24.8 percent upgrade from the ¥13.3 billion ($1.8 billion) it made the year prior. The conglomerate noted its ad sales improvement came about because of increased usage of its popular social networks QQ and WeChat.
The corporation explained the upswing in digital communication helped it mitigate drops in marketing spending by its automotive, travel, and fast-moving consumer goods clients.
Besides, Tencent recorded a sequential drop in fintech and business services revenue in Q1 attributable to a government-mandated lockdown during the Chinese Lunar New Year celebrations. Since consumers could not make offline purchases or ATM withdrawals, that part of its business saw less traffic. However, the segment rose by 21.5 percent year-over-year thanks to greater usage of its high margin wealth management and lending offerings.
Tencent’s Q2 Outlook
Although the Sino conglomerate did not mention any hard numbers in its Q2 outlook, its commentary provided clues regarding its current quarter performance.
To start, Tencent noted it is experiencing headwinds concerning its online advertising income. Given that the coronavirus pandemic has negatively impacted the Chinese economy, it makes sense local brands have curtailed their expenditures.
The multinational also expects a dip in online gameplay as lockdown measures ease, and consumers return to work. But the company also said its titles have “structurally expanded their long-term audiences and appeal.”
As such, mobile gaming may come to represent an even bigger slice of the conglomerate’s financial pie going forward.
COVID-19 has had a deleterious effect on global commerce during the first three months of 2020. However, Tencent’s prudent corporate governance and diverse range of products and services suggest it will produce healthy returns in Q2.