Profits Slide at China’s Tencent as 2023 Revenues Hold Steady

China’s social media, games and video giant Tencent saw 2023 revenues advance by 10% to $84.6 billion (RMB609 billion). But its net profits slid to $16.3 billion (RMB118 billion), down from $26.3 billion a year earlier.

The group is directly affected by weakness in the mainland Chinese economy, which has recovered only slowly since the end of the COVID pandemic, and by ongoing regulatory concerns. That said, online advertising grew to $14 billion (RMB101 billion), at a 22% rate that outstripped the economy.

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Games, normally a pillar, was weak both at home and abroad. Over the last year, China’s games industry regulators have appeared to waver, first seeking to restrict spending in games, then relenting and issuing more approvals. After the financial year, in January, Tencent was given the green light for a mobile game with the National Basketball Association.

In 2023, Tencent’s international games revenues increased by 14% to $7.47 billion (RMB53.2 billion), or by 8% excluding the effect of currency fluctuations, benefitting from the robust performance of “Valorant,” contributions from recently launched games “Goddess of Victory: NIKKE” and “Triple Match 3D,” and a recovery in “PUBG Mobile” in the second half of the year.

Chinese domestic games revenues increased by 2% to RMB127 billion ($17.6 billion), on contributions from recently released “Valorant” and “Lost Ark,” and growth in emerging titles such as “Arena Breakout” and “Fight of the Golden Spatula,” partly offset by a weak contribution from “Peacekeeper Elite.”

In the fourth quarter, international games revenues were up 5% quarter on-quarter to RMB13.9 billion, but Chinese domestic games revenues were down 18% quarter-on-quarter.

The company’s two major online content businesses remained large and significant. At the year end it claimed 248 million music and video subscriptions, up 6%. (Separately, its powerful super app WeChat added 30 million more users for a year-end total of 1.34 billion.)

Profits for its Tencent Music Entertainment business increased, while revenues fell, reflecting a shift to fewer free users and a growth in paid-for music subscriptions.

On the video side, Tencent reported a barely changed 117 million subscribers. That appears to make Tencent Video China’s largest video streamer, with 117 million at year-end, but the group does not disclose the unit’s profit or loss figures separately.

“In 2023, we achieved breakthroughs in a number of products and services, as Video Accounts’ total user time spent more than doubled, enhancements to our advertising AI model significantly improved our targeting performance, and international contribution to our games revenue reached a record 30%. These developments drove high-quality revenue streams which fueled our gross profit growth of 23% and supported our plan to step up capital returns to shareholders,” said management in a regulatory filing.

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