此外，《火影忍者》手游本季度的平均日活超过1000万，实现强劲的同比增长；本季度总收入和总流水最高的PC游戏《marketing Solutions》；《荒野乱斗》本季度的流水实现了同比数倍增长The Tencent conference call pointed out that the company's AI-related revenue accounts for about 10%, and the AI revenue from the Chinese cloud business is not as high as that of US cloud vendors, because the domestic AI market is immature. In terms of application, AI technology has improved the efficiency of content recommendation and ad targeting, increased user usage time and ad response rate, and directly increased revenue. Tencent is integrating AI into more products and services, and it is expected to see more practical applications in the next few quarters.
On Wednesday, November 13, Tencent Holdings announced financial results for the third quarter of 2024, showing that Tencent's Q3 revenue grew for eight consecutive quarters, with net profit surging 47% year over year. The advertising and gaming businesses all performed strongly, and the gross profit of the cloud service business improved markedly.
During the conference call that night, Tencent said that the flagship Evergreen game achieved healthy total turnover and gross revenue growth. Specifically, Wang Zhe Rongyao's turnover achieved year-on-year growth in the third quarter, while the Peace Elite continued the recent strong rebound trend, and the total revenue for this quarter achieved double-digit year-on-year growth.
In addition, the average daily activity of the “Naruto” mobile game this quarter exceeded 10 million, achieving strong year-on-year growth; “Marketing Solutions”, the PC game with the highest total revenue and total turnover this quarter; and “Brawl in the Wilderness” saw several times year-on-year growth in revenue this quarter
Ma Huateng, chairman of the board of directors and CEO of Tencent, said that the company's game business achieved strong revenue growth this quarter, mainly due to the continued strong performance of Evergreen Games. At the same time, he also saw that many new games also have the potential to become Evergreen Games.
In terms of advertising and marketing, Tencent said that by providing more accurate advertising and marketing services to video accounts, its revenue increased by more than 60% year-on-year this quarter. In the future, it hopes to combine video accounts with WeChat Search to form more closed incremental loops, and use AI models to increase the relevance of search results.
Ma Huateng said that the company is upgrading its entire e-commerce strategy around WeChat stores, hoping to create a unified and trustworthy transaction experience based on the WeChat ecosystem.
In terms of cloud business, Tencent said that current cloud revenue is mainly related to AI, has achieved rapid year-on-year growth, and now accounts for a “very large chunk” of infrastructure service revenue.
In a follow-up Q&A session, Tencent also stated that this year's repurchase amount will exceed the target of HK$100 billion, and that next year's repurchase plan will be disclosed in the year-end earnings report.
The following is a transcript of the analyst Q&A session:
Q1: What is the current overall situation of Tencent games? How does management view the impact and future development of the game industry? What are the key events impacting the industry? What popular games will have an important impact on future strategy?
In recent months, some Chinese games have achieved significant global success, and this trend is becoming more evident. For example, “PUBG Mobile” has shown strong strength and continued success, and we think this is a structural trend. This success is due to the rapid adoption of new trends by Chinese studios in the huge local market, such as virtual goods business models and mobile platforms. Furthermore, the Chinese engineering team is large, can invest a lot of manpower in game development and operation, and is willing to adopt new tools such as Unreal Engine 5.
This year, we've seen many new trends, such as “Black Myth: Goku” using advanced technology such as Unreal Engine 5. Whether in the local or international market, we think the real scarce resource is a game that can become an evergreen tree. We'll continue to release new games and analyze their potential to become evergreens. Meanwhile, for popular games, we're making the right investments to help them grow into evergreen games. For potential games, we need to take a deep look, extract insights, and turn them into strategies.
Our different game studios have shown their strengths in their work, and we will further enhance these strengths based on gameplay and the WeChat platform. We value content and story-driven games, such as “Black Myth: Goku,” and this type of mode has been very successful.
Our strategy is to leverage the strengths of different studios, invest in and partner with external studios, and focus on what they do best.
Q2. What is the positioning of e-commerce? What do you think of the 2 trillion yuan e-commerce GMV promoted by the applet?
We hope to build a stronger e-commerce foundation through the WeChat ecosystem, especially in WeChat stores, to create a unified and trustworthy shopping experience. The key is indexing and standardization. We will ensure that product information and merchant data are standardized, verified, and quality monitored. This will improve consumers' shopping experience, improve product quality, and optimize logistics tracking, return and exchange processes, etc.
We will collect data on products purchased by consumers, merchant information, and preferences, which is critical for merchants. We provide merchants with better traffic and transaction support, both of which are important.
WeChat stores will be fully integrated into the WeChat ecosystem to enjoy traffic support from social networks, such as single chat, group chat, circle of friends, public accounts, WeChat search, video accounts, etc. By analyzing consumer purchasing behavior, we can provide merchants with more targeted traffic and transaction support, thereby promoting the healthy development of the e-commerce ecosystem.
We are confident in the long-term potential of the e-commerce ecosystem, especially in the field of applets. There are already a large number of GMVs related to transactions and services. Much of this data is unrelated to physical products, but even physical products have shown good data performance.
Merchants are selling products to customers through the WeChat ecosystem, especially to existing customer groups. Many merchants guide existing customers to complete transactions in the WeChat ecosystem. WeChat stores have shown great potential, and merchants can transfer customer interactions from other systems to applets. Although early merchants may lack new ways to acquire customers, they have the opportunity to acquire new customers by showcasing products to nearby customers through WeChat stores.
Furthermore, as a standardized short video platform, video accounts in the WeChat ecosystem provide stronger traffic support. In particular, when integrated with communication and social functions, merchants can gain wider exposure. Video channel traffic has increased significantly. We are committed to providing a standardized and trustworthy educational environment for merchants to further promote the growth of transaction volume.
Q3. Regarding WeChat Search, Tencent's business inquiries and click rates have increased dramatically. Can you share more details? In which industries do advertisers focus more on commercial keywords to drive traffic and conversions? Other than WeChat Search, do advertisers have any other search related entry points? Can generative AI be used to perform operations such as check boxes?
In the WeChat search field, we have observed that advertisers in industries such as financial services, internet services, games, local automotive services, and luxury goods are actively buying keywords. We plan to add search functionality to video numbers and applets, and use response triggers to improve the user experience. For WeChat stores, we will provide more standardized SKUs and explore advertising opportunities for advertisers. We are considering engaging with consumers through standardized product cards, triggering commercial activity, and using search technology to optimize the flow of information. We will continue to explore how to add commercial search portals in different regions. In terms of monetization, we should keep up the pace and not rush to achieve results.
Q4. Although Operation Delta has performed well in terms of user length and retention rates, iOS rankings and monetization seem unsatisfactory. What are your considerations on this? Are there any plans to improve the game's monetization situation, or are there other considerations? Regarding payment revenue, there was a slight decline in the current quarter, while retail spending in China showed low single-digit growth in the third quarter of 2024. What is the reason for the year-over-year decline in payment revenue? Are there certain consumer categories or verticals that are performing particularly poorly?
For the PVP multiplayer game “Operation Delta”, we initially paid more attention to user participation, and monetization was gradually considered over time. Currently, the game's monetization performance is better than the early days of our other major PVP multiplayer games, although iOS data may not fully reflect this because the game was launched on PC and mobile at the same time, and the main revenue comes from the PC side. Overall, we had a very high level of monetization and user satisfaction with this game.
There are a number of factors influencing changes in payment revenue and retail spending in China. Although we are not paying for the franchise, we are happy with the current paid revenue results. Regarding the decline in payment revenue, we eliminated low-quality or even loss-making transactions and focused on the number of small daily transactions rather than the total amount of transactions. The number of transactions increased by around 10% year over year, which indicates that our payments business is still strong.
Q5. Regarding games in the international market, Tencent mentioned that the retention rate of some games has increased, which has led to an extension of the deferral period. Can this be further analyzed? Does this refer to large flagship games that have performed well in the international market?
Large flagship games in the international market have a longer revenue deferral cycle due to their high retention rate. The local market usually has a delay of 6 to 9 months, while the international market may be delayed a little longer, but not too long. We are optimistic about the prospects for international game revenue. It is expected that the deferred revenue accumulated over the past few quarters will gradually become apparent, bringing more room for growth.
Q6: Given the strong increase in profit margins over the past two years, what is the medium- to long-term profit margin target? Is there a share repurchase plan in 2025? Given the company's strong performance in 2024, are more shareholder returns being considered this year?
We don't have specific information to share about our profit goals, but we're seeing some positive trends. Despite the challenging macroeconomic environment, our revenue growth is still strong, and I hope this trend continues. We're focused on high-quality revenue growth and hope these factors continue for a longer period of time.
We will disclose our thoughts on next year's stock repurchase in the 2024 year-end earnings announcement. Currently, we are unable to disclose specific information. The share repurchase target we set for this year is 100 billion, and we have completed slightly more than 90 billion. We believe we will exceed this target throughout the year. Looking ahead to next year, we will consider potential factors affecting shareholder returns and are willing to share more value with shareholders.
Regarding stock allocations, it is not yet time to disclose relevant financial data; we need to wait a little longer. We will return shareholder returns through measures such as cash back, and operating activities have generated considerable cash flow.
In terms of capital expenditure, we “did a good job” in terms of progressive capital expenditure plans. Given the rapid development of cloud and AI, our pace of managing capital expenses is very reasonable. For the AI business, we expect next year to generate impressivefree cash flow, and the dividend and share repurchase plans were disclosed at that time.
Q7. Can you provide more details on AI integration and GPU deployment in different businesses? How will AI contribute revenue in the future? Can you elaborate further on the overall management strategy? In particular, how to achieve better monetization through AI and other technical tools?
AI technology has now brought significant benefits in content recommendation and ad targeting, increasing users' usage time and ad response rate, and directly increasing revenue. Video numbers can also benefit from AI content recommendations.
AI-related revenue accounts for about 10%, but compared to US cloud vendors, AI revenue is still low. The main reason is that the AI market in China has not fully developed, and there are not many AI startups that buy large amounts of computing power, which limits the large-scale growth of AI revenue.
AI is of great value to the promotion of our products and services, and we are trying to integrate AI into the entire production process to improve efficiency and user experience. As more products and services integrate AI, we expect to see more real-world use cases over the next few quarters. We will continue to iterate and update AI technology.
Q8. We know that there are more domestic policies to promote growth in September. Against the backdrop of a complicated global political environment, how should Tencent position its business and formulate strategies? What was the data performance of marketing services during the Double 11 period? What new advertising trends does this data reveal? Tencent just mentioned a drop in the average order value per payment transaction. What does this mean? How will consumer trends evolve?
The government's stimulus policies are indeed beneficial to the economy. We believe that these policy directions are constructive and timely, so Tencent has a positive attitude towards the long-term economic outlook. Although the exact timing of economic growth is unclear, we are taking the necessary steps to adapt to the current environment. We've been doing the right thing and will continue to evolve based on our current strategy.
We understand the importance of regulatory policies and are committed to actively adapting to regulatory requirements, actively adjusting products, and effectively communicating with regulators to avoid passive responses. In the global market, we continuously optimize our products, strive to create more value for users, and focus on providing meaningful products and services to achieve a win-win situation with users, customers and partners.
We are committed to deepening a culture of excellence and cost effectiveness within the company. We will maintain self-discipline, avoid wasting resources and energy on non-core matters, and ensure focus on valuable products and services to achieve quality development.
Although the macroeconomy has cyclical fluctuations that we cannot fully control, we are focused on doing what we can control. On the regulatory side, we continue to monitor and actively understand the intentions of regulators to ensure that our business complies with regulations.
Regarding the macroeconomic environment, there were positive changes in trading volume after the September and October policy announcements. Although the year-on-year growth rate of trading volume in the third quarter of 2024 fluctuated, the overall trend increased in October, particularly in terms of educational value. We believe that although economic recovery will take time, in the long run, the economy will accelerate recovery. We are optimistic about the Chinese government's determination to boost the economy and the positive structural factors in the Chinese economy, such as a strong engineering talent pool and work ethic, and companies that benefit from a huge supply chain. Overall, we remain optimistic about the long-term macroeconomic outlook.
Q9. For the e-commerce sector, what is the development trend in the next few quarters in the short term? Can you share specific e-commerce development plans? What are your development priorities? What are the specific plans for e-commerce expansion in the short term, especially in terms of live e-commerce and video e-commerce? Considering the slowdown in e-commerce growth and the fierce competition of traditional e-commerce, what is the overall impact of these factors on e-commerce development? Can you share the latest developments in recent open cooperation with Taobao? How will the cooperation with Taobao develop in the future? What potential does this kind of collaboration have?
Regarding WeChat stores, we will continue to optimize infrastructure and promote indexing and standardization within the WeChat ecosystem. We don't rush to achieve results; instead, we work steadily and gradually improve the features. At the same time, we value consumer experience and merchant services, and will provide merchants with more tools to enhance the value of WeChat stores and effectively guide traffic.
Based on social and communication business attributes, we will build more features, functions, and products as basic utilities. We do not pursue short-term e-commerce management, but focus on long-term product functionality and application development. Although the numbers may fluctuate in the short term, we are more concerned about long-term developments.
Regarding cooperation with Taobao, WeChat Pay was implemented on Taobao in October, which is beneficial to both parties and increases users' payment options. We are satisfied with the results of our current cooperation and believe that this will bring more value to the e-commerce industry. As the WeChat ecosystem continues to grow, we believe cooperation with platforms such as Taobao will unlock more potential.
Q10. The game business is currently developing well, and we hope to expand further in the future, especially in Southeast Asia and China. What is the development strategy for these regions? In the global market, especially in the field of shooters, games such as Peace Elite have performed prominently. Will players increasingly turn to shooter games? How to meet players' preferences when the local market is large? How will games of different genres and styles be combined?
Regarding first-person shooters, we see that young Chinese players have a particular preference for this type of game, especially in the 18 to 25 age group; older people may not like it that much. Newly launched games such as Operation Delta have strong appeal to this group, which is a structural trend.
In the Western gaming market, first-person action games dominate. Over time, this trend is likely to become mainstream in the local Chinese market, which is positive for us. We want more success in this type of game, and so far we have achieved significant results in attracting players of specific ages.
“Operation Delta” will not encroach on existing games. Just as different types of TV series attract different audiences, different game genres can coexist and attract different players. We look forward to further innovations in gameplay, including games based on heroes, classes, tactics, and melee battles, all of which appeal to players in different segments. The success of games such as Peace Elite shows that games in the same category can attract a large number of players without encroaching on each other's market share.
Q11. In the field of fintech, the wealth management business is growing. What are the strategies for wealth management and loans?
The recent growth in wealth management is mainly driven by money market funds and has cyclical characteristics. We want to see structural changes in the cycle, and over time, expect users to not only buy money market funds, but also invest in long-term equity funds and ETFs. We are building a product platform to provide richer wealth management options so that users can easily convert funds to purchase other financial products.
When it comes to loans, we have become more careful and strictly control credit risk. We adopt a conservative strategy, lend selectively, and actively control the size of loans. Taking into account the macroeconomic cycle, we will develop the loan business more prudently.
On the investment side, we are actively considering which assets should be divested. In the event of market abnormalities, we will make investment adjustments, divestment and divestment when necessary. We carefully analyze and decide which investments should be removed in order to recover capital, whether for new investments, share buybacks, or to fund future activities.
Despite our share repurchases and dividend distribution, our operating cash flow situation has improved this year.
Q12. Can you share the details of the internal adjustments in the game business and the reasons for the adjustments? How are these adjustments impacting the overall trends in the game market and the company's current gaming business?
We've adjusted our gaming business to support its continued growth. The adjustments of the “Wang Zhe Rongyao” and “Peace Elite” teams have produced positive results. We believe that many games have the potential to become long-term successful “evergreen” games after reaching a certain scale, especially when they have a large user base.
The success of a game depends not only on the game itself, but also on key factors such as team, development process, operations, and community management. We hope that through active team adjustments, more games will be loved by players and become “evergreen” games.
Gaming innovation is critical to us, and our adjustments are aimed at driving innovation and achieving a sustainable growth model. We will focus on new games that have the potential to become “evergreen” games, and work to create more value and exceed players' expectations.
Our gaming strategy is to create quality games, not quantity. We will clearly position each game, including genre, gameplay, items, etc., to maintain Tencent's leading position in the game market. We believe games like Operation Delta have the potential to become long-term successful games, and we hope more games like them.
Q13. Tencent's advertising business performed well this quarter, particularly the development of video accounts. What do you think of the future of combining advertising and video accounts? Furthermore, the integration of video accounts with e-commerce such as Taobao seems to bring more help to merchants. Does this mean that the e-commerce sector will help Tencent unleash the advertising potential of video accounts? Regarding the cooperation between WeChat and Taobao, what led to this cooperation? How should we view the possibility of such cooperation between Tencent and other internet companies?
The macro environment is critical to driving the advertising business in 2025, affecting consumer confidence and the consumer market, which in turn may affect consumer spending.
Our advertising technology, including GPUs, neural networks, and AI, has significantly improved ad effectiveness, such as increasing click-through rates. We integrated content platforms such as video accounts and WeChat Search, and moderately increased the ad load rate of video accounts in the third quarter of 2024, contributing 60% to business growth.
Although our ad load rate is still below the industry average (around 3%-4%, while the industry average is between 10% and 20%), we see room for improvement. We plan to adjust the ad load rate according to e-commerce demand and video account development trends to form a closed loop in the advertising business.
We expect that based on continuous improvements in advertising technology, we will surpass the level of development of the advertising market in the next few years, and that the growth of WeChat Search will also have a positive impact on the video account ad loading rate and maintain market share growth. WeChat stores are critical to the e-commerce loop, and we will further study their value in the e-commerce ecosystem.
Cooperation with Taobao is clearly beneficial to users and provides more convenient services. For us, this kind of cooperation will also help increase the use cases of payment services, increase the exposure rate of payment services, and bring a higher user conversion rate to Taobao. To achieve this collaboration, we have carried out a number of designs and agreements to ensure that the user experience is protected and that users are not spammed. Furthermore, such cooperation can also stimulate consumer spending. We need adequate design and ensure that partners agree to appropriate arrangements to meet regulatory requirements; compliance is critical.
We ensure that all businesses go through the right onboarding process to achieve compliance. Working together with partners is the key to making cooperation worthwhile. We have completed many complex designs and agreements in the past, and now we must ensure that these measures are effectively implemented. In the face of the new environment, we will be more open and achieve more value through cooperation.
