China’s conglomerate group, Tencent Holdings Ltd. (Tencent) reported a significant surge in its first-quarter (Q1) revenue and profits since the high demand for online video games during the coronavirus lockdown boosted its video games business. National lockdowns across several countries had forced people to stay at home and spent more virtual time with friends, which led to an unexpected boom in the gaming business of Tencent.
Tencent’s Video Games Surge
The Chinese investment group, whose subsidiaries specialize in various Internet-related services and products, usually generates more than a third of its revenue from its video games business, which witnessed a growth of 31% to 37.30 billion yuan ($5.26 billion) due to the rise in the global demand. Jason Zhou, an analyst with Guotai Junan Securities, estimated that average revenue per user of China’s mobile games had climbed up from 62.9 yuan in Q4 to 85.2 in Q1 as a result of limited offline entertainment options.
An analytics firm, Sensor Tower analyzed, Tencent’s flagship games namely, PlayerUnknown’s Battlegrounds (PUBG) Mobile and Honor of Kings had topped mobile games revenue globally in March, which reinforced Tencent’s status as the world’s largest gaming firm by sales. Moreover, the gaming company witnessed a soaring of in-game spending on extras such as power-ups and object skins for PUBG Mobile to $232 million, more than three times the amount the title generated in March 2019.
Meanwhile, Tencent’s President, Martin Lau projected that the demand for video games had receded since the beginning of May as people started returning to work amid the partial reopening of the lockdown restrictions. Tencent’s stock has jumped nearly 14.38% this year, against a 15% decline in Hong Kong’s broader Hang Seng index.
A surge in Advertising Revenues
As Refinitiv data showed, surpassing the average estimations of analysts, Tencent’s overall revenue had surged 26% to 108.07 billion yuan ($15.24 billion) with net profit gaining 6% to 28.90 billion yuan for the three months to the end of March. James Mitchell, Chief Strategy Officer, said the coronavirus impact had impacted to gain business awareness regarding the need for the online video game and the company would cater increasingly for that.
In addition to this, the company reported its group online advertising revenue rose 32% while social media advertising revenue grew 47%, which highlighted a behavior change of people due to long-confinement to their homes. However, the company experienced lower revenues from its video and news platforms, which reduced its revenue from media ads by 10%.
Meanwhile, Alex Liu, an analyst with China Renaissance, said that the lockdown demand surge was temporary and unlikely to be sustained for long, but strong deferred revenue was likely to generate from new titles including Dungeon and Fighter Mobile, which would deliver robust growth for the company. Liu added, “The pandemic expedited the digitalization of people’s way of life…Tencent is very mature in the monetization of its current products.”
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