Source: Company reports

2Q17 Results

Tencent reported total revenues for 2Q17 of ¥56.6 billion ($8.4 billion), up 58.6% year over year, beating the consensus estimate of ¥53.0 billion. The gross margin decreased to 50% from 57% a year ago. Non-GAAP diluted EPS was ¥1.72.

Segment Operations Breakdown

Source: Company reports/FGRT

Value-added service (VAS): VAS revenues were ¥36.8 billion for the quarter, up 43.3% year over year, and accounted for 65% of total revenue. Within VAS, online games revenues increased by 39% year over year to ¥23.9 billion, driven by higher revenues from both PC games (e.g., League of Legends) and smartphone games (e.g., Honor of Kings). Social network revenues increased by 51% year over year to ¥12.9 billion, driven mainly by revenue growth in digital-content services including live broadcast, video and music. Online advertising: Revenues for this segment were ¥10.1 billion for the quarter, up 55.4% year over year, and comprised 18% of total revenue. The increase mainly reflected higher traffic for Tencent Video services and news feed advertisements for Tencent News products. Social and other advertising revenues increased by 61% year over year to ¥6.1 billion, mainly driven by WeChat Moments and WeChat Official Accounts. Others: Revenues for the others segment were ¥9.7 billion, up 177.5% year over year, reflecting revenue growth from payment-related and cloud services. The payment business for commercial transactions has increased rapidly, driven by strengthened cooperations with channel partners, especially Meituan-Dianping, to expand the offline merchant base.

Cloud and AI Business

Tencent Cloud expanded its global infrastructure coverage during the quarter and now operates 34 availability zones globally. Tencent maintained a leadership role in providing cloud services to the game, video and live broadcast industries, and expanded its market share in the telecommunication, media, technology and finance sectors during the quarter. Management reiterated the importance of artificial intelligence (AI) for a better user experience and ad targeting. Tencent has recently made breakthroughs in Go Chess AI, face recognition and medical imaging. The company plans to invest further in machine learning, computer vision, speech recognition and natural language processing to improve the experience of both its users and its business partners.