Tencent 21Q4 Performance Briefing
CEO Ma Huateng said, “2021 was a challenging year. We actively embraced change and implemented measures to strengthen the company's long-term sustainable development, but this affected the slowdown in revenue growth. Despite the financial impact, we continue to make strategic progress in our business, including popularizing the use of our enterprise software and efficient office tools, increasing the content creation and viewing volume of video accounts, and expanding the game business in the international market. We believe that China's Internet industry is structurally moving towards a healthier model, returning to its roots centered on user value, scientific and technological innovation, and social responsibility. We are actively adapting to the new environment, reducing costs and increasing efficiency, focusing on key strategic areas, and striving for long-term sustainable growth.”
✍️ Online advertising business drags down performance growth
The revenue of the online advertising business fell 13% year over year to RMB 21.5 billion in Q4. The year-on-year decline in online advertising revenue reflects weak advertising demand in industries such as education, gaming, and internet services, which was partially offset by advertising revenue brought about by the merger of Sogou. Social and other advertising revenue fell 10% to RMB 18.3 billion, mainly due to a decrease in advertising revenue from mobile ad networks and WeChat friend circles. Media ad revenue fell 25% to RMB 3.2 billion, reflecting a decrease in ad revenue for Tencent Video and Tencent News Service.
The revenue of the online advertising business fell 13% year over year to RMB 21.5 billion in Q4. The year-on-year decline in online advertising revenue reflects weak advertising demand in industries such as education, gaming, and internet services, which was partially offset by advertising revenue brought about by the merger of Sogou. Social and other advertising revenue fell 10% to RMB 18.3 billion, mainly due to a decrease in advertising revenue from mobile ad networks and WeChat friend circles. Media ad revenue fell 25% to RMB 3.2 billion, reflecting a decrease in ad revenue for Tencent Video and Tencent News Service.
✍️ Cost growth is faster than revenue growth, dragging down net profit performance
YoY's revenue costs for 202Q4 increased 15% to RMB 86.4 billion, mainly due to increased transaction costs due to increased payment-related transaction amounts, cloud service project deployment costs, server and bandwidth costs, and content costs, partly offset by reduced channel and distribution costs. In terms of revenue as a percentage of revenue, revenue costs increased from 56% in 2020 Q4 to 60% in 2021/4, reflecting the cost growth rate of several businesses faster than revenue growth and our continued investment in key strategic areas.
YoY's revenue costs for 202Q4 increased 15% to RMB 86.4 billion, mainly due to increased transaction costs due to increased payment-related transaction amounts, cloud service project deployment costs, server and bandwidth costs, and content costs, partly offset by reduced channel and distribution costs. In terms of revenue as a percentage of revenue, revenue costs increased from 56% in 2020 Q4 to 60% in 2021/4, reflecting the cost growth rate of several businesses faster than revenue growth and our continued investment in key strategic areas.
✍️ It is expected that the impact of child protection measures on revenue will be fully absorbed in the second half of '22. After the new version is released, we believe it will benefit from the launch of more new games.
✍️ Online advertising can resume growth in late 2022
We continue to improve our differentiated advertising solutions while adapting to regulatory changes and the ever-evolving macroeconomic environment. In 2021 Q4, the number of daily active advertisers on WeChat increased by more than 30% year over year. More than one-third of friend zone advertising revenue comes from advertisements that use applets as landing pages and advertisements that connect users and customer service representatives through corporate WeChat. As we adapt to the new environment and further upgrade our advertising solutions, we expect the advertising business to resume growth in late 2022.
We continue to improve our differentiated advertising solutions while adapting to regulatory changes and the ever-evolving macroeconomic environment. In 2021 Q4, the number of daily active advertisers on WeChat increased by more than 30% year over year. More than one-third of friend zone advertising revenue comes from advertisements that use applets as landing pages and advertisements that connect users and customer service representatives through corporate WeChat. As we adapt to the new environment and further upgrade our advertising solutions, we expect the advertising business to resume growth in late 2022.
The conclusion is to continue to adapt to changes in the regulatory environment. It is expected that in the second half of '22, it will return to the path of growth.
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