Wen / Pei Pei
Source: Internet and Entertainment Monster Group (ID: TMTphantom)
Tencent announced its quarterly report in 2018: revenue of 84.896 billion yuan, up 28% year-on-year, higher than the unanimous expectation of 2%; non-net profit of 1973 billion yuan, up 13% year-on-year, higher than the unanimous expectation of 5%.
In the fourth quarter of 2018, hand travel revenue rose 12% year-on-year, higher than our expectations; end travel revenue fell 13% year-on-year, basically in line with our expectations; advertising revenue rose 38% year-on-year, and other revenue (including finance, cloud, film and television production) rose 72% year-on-year, all slightly lower than our expectations.
Sales expenses in the fourth quarter fell by 5% year-on-year, which was the biggest driving force behind the expected non-net profit deduction.Management fees (including R&D) rose at a similar rate as revenue. This reflects Tencent's strong cost control capabilities.
In the fourth quarter of 2018, Tencent's new mobile products were not strong, but mobile revenue was still up 12% year-on-year (we expect a slight decline).We believe that this is due to the enhanced realisation of old games.In the first quarter of 2019, although the "King's Glory" is not old, the frequency and intensity of new products are far lower than the same period last year, so hand travel revenue is likely to decline year on year.
In 2018, with the 10th anniversary of DNF and the championship of LOL World Competition won by China, the revenue of end-game is still declining year-on-year. We estimate that the revenue of end-game will continue to decline in the first half of 2019, but the decline will be reduced to single digits, because the remaining players have high user stickiness and strong average consumption capacity.
We believe that Tencent's advertising revenue will only grow by 26% in 2019 (the consensus expectation is about 35%).Mainly because: the macro-economy continues to decelerate, the demand of advertisers is insufficient; the growth rate of Wechat advertising space will not be too fast; the growth rate of video, news and other media advertising continues to slow down.
The scale of Wechat Payment and Finance Management has maintained rapid growth, but in January 2019,We expect Tencent Cloud to continue to achieve revenue growth of more than 80%, but it is difficult to make profits.
Risk factors: regulatory risk, new business risk, technology substitution risk, strategic investment risk.
Highlights of the Four Seasons Report 2018: QQ, Hand Tour and Payment Business
QQ user churn is over
In 2018, WeChat users (including overseas WeChat) maintained double-digit year-on-year growth. However, few people have noticed that from any point of view, QQ user churn is over. QQ Mobile MAU resumed year-on-year growth in the fourth quarter of 2017.QQ overall MAU recovered year-on-year growth in the fourth quarter of 2018.In our previous report, we pointed out that post-95 users attach great importance to QQ, which not only contributes a great deal to Tencent's mobile traffic, but also retains the next generation of users.
Hand Tour Business Income is Higher than Our Expectations
In February 2019, with the introduction of a large number of new skins and the launch of the warfare order system, we estimated that the flow of Glory of the King reached a new record.However, in the first quarter of 2019, we believe that Tencent's mobile business revenue is still likely to decline year-on-year.Because in the first quarter of 2018, Tencent launched QQ Flying Car and Miracle: Awakening, two heavy-duty novice tours; in the first quarter of 2019, Tencent only launched a boom novice tour of "Perfect World", while the revenue of old games generally declined with the life cycle (except "Glory of the King".
Anyway, Tour is still Tencent's biggest business bright spot in 2019.Since April, Tencent has launched heavy-duty hand-tour products almost every month.
Payment is the Foundation of Constructing Wechat Ecosystem
According to the company's customer complaints released in 2018, we can infer that the total number of Alipay transactions was 197 billion 500 million pens, and that of CAI Fu Tong was 466 billion 500 million. More than 100 million users and more than 600 billion yuan of assets management scale of Finance Tong. Commercial payments account for more than half of Tencent's payment transactions, and monthly merchants accessing Tencent's payment system rose by 80% in 2018. Outside China, Wechat Payment has been launched in 49 countries and regions, especially in Hong Kong.
For Tencent, payment is the basis of constructing Weixin ecosystem.If there is no Wechat payment, there will be no more upsurge, no growing soil for small-program e-commerce, and no access to community life services. The strong growth of payment has enabled Tencent to seize the ticket to the new retail era, and also made emerging e-commerce and O2 O platforms more willing to cooperate with Tencent strategically.
Advertising business will be greatly affected by macro-economy
In the fourth quarter of 2018, Tencent's advertising revenue grew 38% year-on-year, slowing down considerably compared with the previous quarter. Tencent's advertising business has always been highly expected in the market: it still has many advertising space not developed, advertising sales efficiency in history is not high, and internal data are not clear. After the establishment of AMS (Advertising Business Line) in October 2018, the above problems are expected to be solved. However, the development of advertising business is determined by both supply and demand.Is it really useful to increase the supply of advertising space only when the economy continues to slow down and advertisers'budgets are tight?
According to the exclusive monitoring data of Guojin Securities Research and Innovation Center, since August 2018, the flow price of mobile advertising (CPM and CPC) has entered a downward track, and has basically fallen back to 2016 level by the end of the year.We believe that the decline in flow prices is due to insufficient demand:
Regulatory policies affect payment and gaming businesses
In 2019, the state's supervision of video, live broadcasting, games, animation and other industries is still being strengthened. Tencent's above business may be affected by regulatory policy adjustments. As one of the largest digital content platforms in China and even in the world, Tencent needs to respond to national policies as much as possible and take the initiative to eliminate regulatory risks, which will inevitably affect the short-term liquidity of digital content business.
Since the fourth quarter of 2018, the growth of MAU in Stimulating the Battlefield has basically ended, and the absorption of Glory of the King has also come to an end. However, it still has more than 80 million MAUs, occupying a large number of user time, and Tencent is hard to make up its mind to shut it down. In 2019, "Stimulating the Battlefield" can not be realized, and it will still be a huge drag on Tencent's game business.
As an Internet company, regulatory risk can not be ignored. Game, video, third-party payment and so on are all industries under strict state supervision, and policy changes may be unpredictable.
Tencent is expanding new businesses including financial payment, cloud computing, artificial intelligence and so on. There are already strong competitors in these areas, and the company may not be able to meet its strategic expectations.
Technology is the lifeline of Internet companies, and Tencent's basic research level is not significantly higher than its peers, so there are business and product substitution risks brought about by technological progress.
Tencent makes a lot of strategic investment abroad, and the details of information disclosure are few. Although Tencent makes a large amount of investment impairment provision every year, the risk of strategic investment impairment can not be ignored.