Tencent Posts Record Revenue, Online Gaming Growth In Third Quarter

Ramish Zafar
Tencent Leyou David Jaffe

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Chinese conglomerate Tencent Holdings reported its financial results for the third quarter of 2020 earlier today. The company, one of many who benefited from pandemic-induced lockdowns in China and globally, has posted record all-time high quarterly revenues during a three month period that some predicted would have resulted in a growth slowdown due to the lockdowns being lifted. Fuelling this growth is Tencent's revenue from online games, which surged 8% sequentially and nearly doubled year-over-year, despite the aforementioned ease in lockdowns.

Tencent Grows Online Gaming Revenues By 45% Year-Over-Year

The annual growth in online gaming revenues marks the third consecutive quarter for this year in which the segment has demonstrated a 30 point plus growth. At the end of the first quarter, these revenues stood at RMB 37.3 billion, for a 31% year-on-year growth, and at the end of the second quarter, they stood at RMB 38.2 billion, to mark 40% annual growth.

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Growth at the end of the previous quarter is the highest for this year, as Tencent's RMB 41.4 billion revenue from the sector mark for a staggering 45% year-over-year growth. They form one-third (33%) of the company's total revenues of RMB 125.4 billion for the quarter, which, as mentioned above, are the highest in Tencent's history.

According to the company's earnings presentation, strong growth in player spending which also increased the average revenue-per-user that Tencent earns contributed to this growth. More importantly, deferred revenue from stay-at-home activity from the second quarter carried over to the previous quarter; a crucial occurrence that grew what Tencent terms as 'total smart phone games' revenue by 61% year-over-year.

Tencent includes revenue booked under Online Games in this segment too, so it's uncertain what proportion of the third quarter's online gaming revenue was simply carried over from the previous quarter.

Slide 8 from Tencent's earnings presentation for the third quarter of 2020 details the conglomerate's gaming revenues. Image: Tencent Investor Presentation for 3Q 2020 Earnings

Tencent's Honor of Kings exceeded 100 million daily active users (DAU) for the first ten months of this year, highlighting the changing entertainment trends all over the globe in 2020. These shifts have also driven other titles, such as Pokemon Go to historic heights. In fact, Pokemon Go saw its player spending cross $1 billion for the first ten months of this year; a figure that beat spending for the entire calendar year 2019, and came despite the title's gameplay being dependant on outdoor activity.

With increasing trade tensions between the United States and China, Tencent also came under American scrutiny in September when the company was asked to provide details about its information storage practices. Over the course of the next few months, the company plans to launch two new games and a live-action drama series based on Honor of Kings. Tencent's Naruto Mobile developed four years back, also reported all-time high revenue and daily active users in the quarter - making important contributions to the company's revenues.

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