Amid regulatory cloud, Tencent posts 29% increase in revenue, profits up 34%

China's internet giant Tencent posted a strong set of numbers for the third quarter of its financial year, driven by robust demand for its games and communications platforms during the pandemic. According to a company statement, revenue for the three months ended September 30 were up 29% year-on-year to RMB 125.44 billion ($18.4 billion). Operating profit rose 34% to RMB 38 billion ($5.6 billion). 

This has been a tricky period for large technology platforms such as Tencent and rivals Alibaba, who have not only had to cope with a market recovering from plotting a pandemic recovery, but also face the prospect of increased regulation that have cast a shadow on this space. Earlier this week, a 22-page edict from regulators panicked the sector, leading to a $290 billion selloff from spooked investors. 

“Such regulation is not new, and it’s also not unique to China,” Martin Lau Tencent's president said, trying to calm frayed investors' nerves on a post-results call. “As technology companies become bigger and more important to the economy ... more regulations do reflect the new realities needed. It’s not just the case for China, it’s also the case globally.”

Tencent's Value-Added Services business—including gaming—posted a strong 38% growth in revenue to RMB 69.8 billion (US$10.5 billion). Online game revenues grew 45%, while social-network revenues increased 29% after the consolidation of game-streaming giant Huya. Honour of Kings exceeded 100 million average daily active users for the first 10 months of 2020.

"This quarter marked the second anniversary of our strategic organisation upgrade, which was intended to enhance our strength in consumer internet and extend our presence to industrial internet," Ma Huateng, chairman and CEO of Tencent, said in a statement. "While the upgrade was designed to bear fruit over the longer run, we are already seeing initial benefits in areas such as consolidating our advertising services, rejuvenating our product and content platforms, growing our cloud and SaaS businesses and building an internal open source code base."

Meanwhile, revenues from online advertising increased by 16% to RMB 21.35 billion (US$3.2 billion) for the third quarter of 2020 on a year-on-year basis, boosted by wider adoption of its algorithmic advertisement buying solutions, as well as demand growth from categories such as education, internet services and ecommerce, Also, social and other advertising revenues grew by 21% to RMB 17.75 billion (US$2.68 billion), driven by higher revenues flowing from Weixin Moments. However, growth of new users appeared to be slowing for the combination of Wechat and Weixin, with monthly user addition growth at just 0.6% quarter-on-quarter and 5.6% year-on-year. 

Away from the headlights of the gaming business, Tencent's fintech and cloud computing businesses continued to display strong growth. While the fintech business, valued as high as $300 billion before Ant's IPO was upended, saw its total payment volume grow by 30%, the number of wealth management customers in its kitty grew 50% in the same period. 

According to a company statement, some softness was seen in the cloud business, with clients delaying projects. However, its Tencent Meeting online platform saw 100 million users sign up, with a new enterprise version also released to target a wider audience.