Tencent Holdings TCEHY reported second-quarter 2020 non-GAAP earnings of 44 cents per share that beat the Zacks Consensus Estimate by 4.8%.
Also, revenues of $16.2 billion beat the consensus mark by 1.3%.
In local currency, non-IFRS (formerly referred to as non-GAAP) earnings were RMB3.13 per share, up 27.4% year over year.
Revenues of RMB114.8 billion increased 29% from the year-ago quarter, driven by steady performance of FinTech services, smart phone games, as well as social and other advertising.
Top-Line Details
Value Added Services (“VAS”) revenues (56.6% of total revenues) rose 35.2% year over year to RMB65 billion.
The increase primarily reflected revenue contributions from domestic smart phone games such as Peacekeeper Elite and Honour of Kings, as well as increased contributions from overseas titles including PUBG Mobile and Clash of Clans, partly offset by lower revenues from PC client games such as DnF and Cross Fire.
The growth was backed by a 29% rise in social networks revenues that totaled RMB26.7 billion. Social networks benefited from revenue contributions from digital content services including the live broadcast services of HUYA Inc. (which was consolidated as a subsidiary from April 2020), and music subscriptions growth, as well as revenue growth from in-game virtual item sales.
Tencent Holding Ltd. Price, Consensus and EPS Surprise
Tencent Holding Ltd. Price, Consensus and EPS Surprise
Tencent Holding Ltd. price-consensus-eps-surprise-chart | Tencent Holding Ltd. Quote
Online games revenues grew 40% from the prior-year quarter to RMB38.3 billion. Total smart phone games revenues (including smart phone games revenues attributable to our social networks business) grew 62% year over year to RMB36 million, driven by more playing time in the company’s franchises.
Honor of Kings deepened user engagement and released more top-tier skins during annual Give Me Five festival.
Peacekeeper Elite celebrated its first anniversary with new content and game modes to enhance the competitive experience for users.
Internationally, user base expanded, courtesy of PUBG MOBILE. Brawl Stars’ ranked #1 in iOS China Download Chart in June, extending its global leadership in the fast-paced 3v3 MOBA genre.
Meanwhile, PC client games revenues were RMB10.9 billion, declining 7% from the year-ago quarter due to soft DnF and Cross Fire performance.
FinTech and Business Services revenues (25.9% of total revenues) grew 30.1% year over year to RMB29.8 billion. This upside was driven by user base and business scale expansion, as consumption rebounded after the lockdown was lifted.
Online advertising revenues (16.2% of total revenues) were up 13.4% from the year-ago quarter to RMB18.6 billion. The increase was primarily due to revenue growth from the mobile advertising network, which benefited from increased traffic and a greater mix of video advertising with higher pricing, as well as increased revenues derived from Weixin Moments due to more inventories and impressions.
Social and other advertising revenues grew 27% year over year to RMB15.3 billion attributed to increases in advertisement impressions driven by Weixin properties. Mobile advertising network revenues expanded on higher eCPMs as video format advertisements exceeded 40% of ad network revenues.
However, media ad revenues decreased 25% year over year to RMB3.3 billion due to weak demand for brand ad and delayed content production or release as a result of coronavirus outbreak.
Others revenues (1.3% of total revenues) increased 7.1% year over year to RMB1.5 billion. Project deployment and new accounts acquisition for cloud business were delayed due to the pandemic. However, Tencent Meeting achieved breakout success and became a leading video conference app in China.
Moreover, WeChat Work enhanced its industry solutions and deepened integration with Weixin, helping the company to sign up more key accounts, especially in the retail, education and public sectors, and driving its daily average users (DAUs).
User Base Details
In second-quarter 2020, combined MAU of Weixin and WeChat increased 6.5% year over year to 1.2 billion. Smart device MAU of QQ declined 8.4% to 647.6 million.
Fee-based VAS subscriptions grew 20.4% year over year to 203.4 million. Tencent Video subscriptions were 114 million, up 18% year over year, benefiting from joint membership promotions with partners. Music subscriptions increased 52% year over year to 47 million, driven by expanded paid content library.
Operating Details
Gross profit was up 36.1% year over year to RMB53.2 billion. Gross margin expanded 230 basis points (bps) on a year-over-year basis to 46.3%.
Selling and marketing expenses increased 66% year over year to RMB7.8 billion. General and administrative expenses increased 31% year over year to RMB16.5 billion.
Adjusted EBITDA increased 24.5% year over year to RMB43.7 billion. Adjusted EBITDA margin contracted 150 bps on a year-over-year basis to 38%.
Non-GAAP operating profit grew 37.7% year over year to RMB37.6 billion. Additionally, operating margin expanded 200 bps year over year to 32.7%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and cash equivalents of the company were RMB173.7 billion compared with RMB135.27 billion on Mar 31, 2020.
As of Jun 30, 2020, net cash was RMB7.2 billion compared with net debt of RMB5.71 billion on Mar 31, 2020.
Free cash flow increased 127% year over year to RMB28.4 billion.
Zacks Rank and Other Stocks to Consider
Currently, Tencent has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are Agilent A, Autohome Inc. ATHM and Analog Devices ADI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Agilent is set to report quarterly results on Aug 18 while both Autohome and Analog Devices will report quarterly results on Aug 19.
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