The Years Behind Prosperity: In-depth Analysis of Tencent's 2022 Financial Report

In 22Q4, the company's revenue was 144.954 billion yuan, YoY+0.5% changed from a decrease to an increase, and QoQ+3%. The overall revenue exceeded the market consensus (144.5 billion yuan).

Profit growth has been significant, and large-scale cost reduction and efficiency enhancement have accelerated the release of profits. The adjusted operating profit in 22Q4 was 39.426 billion yuan, YoY+19%, and the operating profit margin was 27.2%. The adjusted net profit attributable to the parent is 29.711 billion yuan, YoY+19%, and the net profit rate is 20.5%. In terms of cost control, sales expenses fell by 47.36% year-on-year to 6.115 billion yuan, and the sales expense ratio dropped from 8% to 4%. Other income in 22Q4 was 85.8 billion yuan, which was basically the same as the same period last year, mainly due to the disposal income related to Meituan.

The distribution of Meituan shares and dividends resulted in a dividend yield of 5.7%. The company's total cash at the end of the period was 319.6 billion yuan, with abundant cash flow. At the same time, the company announced that it will distribute 165.6 billion Hong Kong dollars to Meituan shares in March, and will distribute a final dividend of 2.4 Hong Kong dollars per share on June 5, 2023. The combined dividend rate of the two will reach 5.7%.

In 22Q4, the combined MAU of WeChat and WeChat was 1.313 billion, YoY+3.5%, QoQ+0.3%, exceeding market expectations of 1.31 billion. The number of QQ mobile terminal users is 572 million, YoY+3.6%, QoQ slightly fell -0.4%, exceeding the market expectation of 560 million, especially the growth of QQ mobile customers, which means that Tencent’s advantages in the social field are constantly increasing, while WeChat, as a social tool used by people all over the country, is still growing, which also shows that Tencent's moat is strengthening.

Paid value-added service paid members were 234 million, a slight decrease of 1.1% year-on-year, but a quarter-on-quarter increase of 2.2%. The year-on-year decline was mainly due to Tencent Video’s increase in member pricing, and the postponement of content scheduling led to a decline in the number of members. There is a mutual promotion relationship between the richness of content and the development of content platforms. With the continuous development of content platforms, the richness of content It will also continue to improve. In 2022, as a year with less rich content output, the decline in fee-based value-added services is a temporary decline, and the probability of regaining growth in 2023 is high.

22Q4 value-added service revenue fell by 2% year-on-year to 70.4 billion yuan, mainly due to the decline in the domestic game business. The speed of game license issuance is closely related to the production and development speed of game companies. Currently, game licenses are gradually being released (including domestic and imported games). Game version number), which also brings some expectations for the overall recovery of the game industry in the later period.

At present, the revenue of the game business is 41.8 billion yuan, of which, the revenue of the international game business has increased by 5% year-on-year to 13.9 billion yuan. If the impact of exchange rates and the related adjustments of Q4Supercell are excluded, the year-on-year growth of the international game business will reach 11%. The domestic game business revenue fell 6% year-on-year to 27.6 billion yuan, mainly due to the high base in 21Q4 and no new games released in the fourth quarter.

Social network revenue fell by 2% to 28.6 billion yuan, mainly because music live broadcast and game live broadcast services were impacted by platforms such as short videos, resulting in a decrease in revenue. Subsequent live broadcasts of video accounts are expected to increase business competitiveness to withstand the impact of fierce competition. However, the income contribution of the music business is limited under the condition of a good competition pattern, and it is expected that the overall contribution of the content business will be more difficult.

22Q4 advertising business revenue increased by 15% year-on-year to 24.7 billion yuan, ending the decline in the first three quarters and achieving growth, mainly due to increased advertising spending by advertisers in the e-commerce, Kuaishou, and game industries, reflecting the marginal recovery of the advertising industry. At the same time, the company's advertising revenue model continued to diversify. The demand for advertising on video accounts and WeChat applets was strong, and the mobile advertising alliance recovered significantly, which was reflected in a 17% year-on-year increase in social and other advertising revenue.

At the peak of economic growth and economic cycle, the demand and budget for advertising tend to increase, and the performance of advertising companies will increase accordingly. On the contrary, the performance of advertising companies will also decline accordingly. Compared with effective advertising, Internet advertising has the advantage of measurable conversion rate . It usually has a strong anti-inflation ability in the economic recovery cycle, so it can be expected that in the process of economic recovery in 2023, Tencent's advertising business will have a significant recovery.

The financial technology enterprise service business revenue fell by 1% year-on-year to 47.2 billion yuan, mainly due to the impact of the 22Q4 epidemic lockdown, which led to the shrinkage of the total payment amount, while the cloud business is mainly still reducing losses, reducing losses, and non-profitable businesses. Jinke's enterprise service business is closely related to the restoration of the entire macro economy. It is expected that after the epidemic prevention and control is lifted in 2023, it is expected to usher in growth with the recovery of the macro economy.

(1) Competitiveness. Tencent's biggest market competitiveness comes from its huge and indestructible Tencent ecosystem. In the past year, the company faced macro headwinds and competition from various platforms (short videos, etc.). The user data of its social entertainment ecosystem matrix remained strong, showing that the strong resilience of Tencent's ecology has a very deep moat.

(2) Fundamentals. With the recovery of the China macro economy, Tencent’s current business flexibility will also be available. The revenue growth of the game business and advertising business in 2023 is highly visible, and the probability of business income profit elasticity is high.

(3) Liquidity and valuation. At present, China still maintains a stable and relatively loose monetary policy. With the emergence of the global banking crisis, it is expected that the possibility of maintaining a tight monetary policy in the world for a long time is not high, which supports Tencent's valuation.

(4) Major shareholders are under pressure to reduce their holdings. The reduction of shareholdings has continued to cause valuation pressure on the company in the past. At present, Tencent's continuous repurchase can reduce the financial pressure in this regard, and it will not become the main influencing factor of the company's stock price at present.

Therefore, in 2023, under the dual superposition of economic recovery and relatively loose monetary policy, Tencent has a certain probability of achieving a joint boost in revenue, profit and valuation. This is worth waiting for the capital market.