Chinese internet group Tencent reported a slowdown in revenue growth in the second quarter to 30 percent, for total revenues of CNY 73.675 billion (USD 11.135 billion). While advertising, content and social media revenues grew strongly still, the company's mobile gaming business showed a marked slowdown.
Operating profit fell 3 percent year-on-year to CNY 21.807 billion, and net profit was down 2 percent to CNY 17.867 billion. Tencent said the lower profit was mainly due to lower investment gains, while adjusted operating profit was still up 11 percent year-on-year. Adjusted EBITDA increased 18 percent to CNY 28.139 billion, while free cash flow was down 12 percent to CNY 15.374 billion after capex more than doubled year-on-year to CNY 7.085 billion.
Tencent said it was focused on user engagement in the quarter, such as increasing user time on its QQ news feed and mobile browser as monthly active users decline, and integrating its 'Mini Programs', or small apps that run over Wechat, with more services such as Weixin Pay. Investment was focused on live gaming services to help drive its games business and "smart retail" opportunities, to support the company's payment and cloud services.
The investment was funded in part by monetising some of its investments, such as stakes in Ele.me and Mobike. Tencent's stakes in listed companies were worth in total CNY 240 billion at the end of June.
Lower games monetisation
In the mobile games business, annual revenue growth slowed to 19 percent and revenues fell 19 percent on a sequential basis to CNY 17.6 billion, due in part to the timing of the launch of new titles towards the end of the quarter. In China, daily active users grew at a double-digit rate year-on-year, but monetization per user declined as users shifted time to non-monetized tactical tournament games.
Going forward, the company said it will focus more on monetising the popular tournament games, launching a broader range of games in high-ARPU categories (such as the RPG genre) and boosting international revenues from its China-developed games. The company warned that these measures will require several months to take effect, but said it was encouraged by the continued growth in the number of DAUs and ARPU upside towards the level of industry peers.
Digital content continued to grow strongly, with total fee-based VAS subscriptions up by 30 percent year-on-year to 154 million. The growth was led by video subscriptions, which more than doubled year-on-year to 74 million. In the online advertising business, revenues increased 39 percent year-on-year and 32 percent quarter-on-quarter. Tencent also reached over 800 million monthly users of its payment services at the end of June, and the average daily transaction volume increased by over 40 percent year-on-year.
