At least Tencent can retreat into a virtual world
In a challenging economic climate, one group in China continues to spend: gamers. This demographic helped Tencent achieve a one-third jump in quarterly adjusted earnings, reaching $8 billion. Outside the gaming segment, however, fintech and cloud services saw minimal growth, as both consumers and businesses held back on real-world spending.
Results released on Wednesday underscore Tencent’s resilience as China’s largest company by market value. Domestic gaming revenue surged to 37.3 billion yuan ($5.2 billion) in the three months ending September, a 14% year-on-year increase, driven by popular titles like Dungeon & Fighter Mobile and Valorant. Tencent’s marketing services division also reported a 17% sales increase, with advertising revenue from gaming and e-commerce offsetting declines in industries such as food, beverage, and real estate.
Yet, the strength of the gaming sector only goes so far. Revenue from Tencent’s mobile wallet declined due to “subdued consumption spending.” On a call with analysts, Chief Strategy Officer James Mitchell noted that while transaction volumes increased, the average value per transaction fell. Additionally, investments in artificial intelligence have yet to yield significant returns, partly due to weaker domestic demand for computing services compared to the U.S.
The data paints a complex picture of Chinese consumer behavior. Some improvements have emerged since Beijing introduced stimulus measures in September. For instance, Tencent reported a rise in transaction values on its payment platform last month—the first year-on-year growth in over a quarter. However, longer-term forecasts remain cautious. Analysts expect Tencent’s marketing revenue growth to slow from an estimated 18.6% this year to 10.7% by 2027, according to Visible Alpha.
This trend is concerning, as advertising spending often serves as a leading indicator of economic health. E-commerce giant Alibaba, which is set to release its third-quarter earnings this week, is similarly projected to see only low single-digit growth in its advertising division in the coming years.
For now, Tencent can rely on its gaming division to weather the storm, proving once again the enduring appeal of virtual worlds in times of economic uncertainty.
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Source: https://www.reuters.com/breakingviews/least-tencent-can-retreat-into-virtual-world-2024-11-14/?