Tencent Q1FY24 Performance & Microcosm Launch

Financial Overview

Tencent Holdings Limited exhibited robust financial performance in the first quarter of the fiscal year 2024 (Q1FY24), underscoring its position as a global technology leader. The company’s financial highlights for the quarter include:

• Total Revenues: Tencent achieved total revenues of 159.501 billion RMB (22.5 billion USD), representing a 6.34% increase compared to Q1FY23. This growth was driven by the strong performance across its diversified business segments.
• Gross Profit: The gross profit for the quarter was 83.870 billion RMB (11.8 billion USD), marking a significant 23.01% increase from the same period last year.
• Operating Profit: Tencent reported an operating profit of 52.556 billion RMB (8.3 billion USD), a remarkable 38.15% rise from Q1FY23.
• Net Profit: The profit for the period surged to 42.651 billion RMB (7.2 billion USD), reflecting a substantial 61.59% increase year-over-year (YoY).
• Earnings Per Share (EPS): Basic EPS for the quarter was 4.48 RMB, while diluted EPS stood at 4.39 RMB.

Other notable financial metrics include:

• Total Assets: As of March 31, 2024, total assets amounted to 1.646 trillion RMB, an increase of 4.4% from the previous quarter.
• Total Equity: Total equity rose by 4.93% QoQ, reaching 916.769 billion RMB as of March 31, 2024.
• Cash Flows: Cash flows from operating activities increased by 34.10% to 72.350 billion RMB​​.

Despite the strong performance, Tencent did not declare an interim dividend for the first quarter of 2024.

Business Developments

Tencent’s business segments continued to perform well in Q1FY24, contributing to the company’s overall growth. Key developments in the quarter include:

• Gaming: Several domestic games, such as Fight of the Golden Spatula, CrossFire Mobile, and Arena Breakout, achieved record-high gross receipts. Internationally, Brawl Stars saw its daily active users double year-over-year, and gross receipts quadrupled.
• Video and Music: Tencent Video released new self-commissioned drama and animated series, including Blossoms Shanghai, The Hunter, and Perfect World Season 4. Tencent Music strengthened its collaboration with Tencent Video, releasing the original soundtrack for the drama series The Legend of Shen Li.
• Advertising Technology: Tencent upgraded its advertising technology platform to help advertisers establish more effective campaigns and made generative AI-powered advertising creation tools available to advertisers.
• Cloud Services: Tencent Cloud Media Services was recognized as the market leader in China for the sixth consecutive year​​.

Microcosm: Virtual Urban Historical Landscape

In a significant development, Tencent launched Microcosm, the largest virtual urban historical landscape ever created. This immersive experience brings Beijing’s Central Axis to life online, coinciding with the Central Axis being added to the World Heritage List by UNESCO. Key features of Microcosm include:

• Immersive Experience: The Digital Central Axis Weixin Mini Program offers users an immersive guided tour of the Central Axis, featuring avatars that guide users through a detailed 3D virtual replica of the heritage site. Users can explore the site at their own pace, including areas that may have been damaged or are no longer visible in real life.
• Crowdsourced Conservation: The Digital Watchman project enables users to report signs of deterioration or damage by scanning QR codes and uploading photos. This innovative crowdsourced conservation initiative has logged more than 70,000 inspection photos from 17,000 Digital Watchman volunteers.
• Technological Innovation: Microcosm was created using high-definition scanning, modeling, PCG auto-generation, and other game technologies. The virtual space contains over 15 terabytes of 3D data and a total of 10.4 billion facets, providing a sophisticated five-level map mode covering 200km x 200km and including 300,000 plants and 2.2 million buildings.
• Cultural Integration: Elements of the Central Axis are woven into music, videos, animations, and mobile games, engaging the public and promoting cultural preservation​.

Zhan Shu, Head of Tencent’s Digital Culture Lab, emphasized the project’s goal to use digital innovation for conserving and revitalizing cultural monuments. The project exemplifies Tencent’s commitment to leveraging technology for societal good​​.

AI and Future Prospects

Tencent continues to explore the use of generative AI in gaming, aiming to enhance productivity and efficiency despite high costs. Liang Chen, General Manager of Tencent Cloud’s internet industry department, highlighted the potential of AI in gaming while acknowledging the current exploratory phase of generative AI applications.

Chen pointed out that while AI has long been used for pattern recognition and other functions in gaming, the effective use of generative AI is still evolving and comes with high costs. He cited examples such as training AI to provide historically accurate responses within game settings, utilizing Tencent’s Hunyuan AI model and other in-house developed models​.

Business Outlook

Tencent’s strategic focus on high-quality revenue streams, including advertising, eCommerce technology service fees, and platform service fees, continues to drive growth. The company is also committed to returning excess capital to shareholders through an aggressive buyback plan and increased dividends.

“We continue to cultivate high-quality revenue streams, contributing to our gross and operating profit growth outpacing our revenue growth,” said a Tencent spokesperson. “Our commitment to the principle of ‘Value for Users, Tech for Good’ remains unwavering. We will continue to create value for our shareholders and the community, fostering innovations that address societal needs and contribute to a sustainable future for all”​​.

In conclusion, Tencent’s strong financial performance in Q1FY24, coupled with innovative projects like Microcosm and strategic investments in AI, underscores its ongoing commitment to leveraging technology for cultural preservation and business growth. With continuous investments in AI and a diversified portfolio, Tencent is well-positioned for future expansion and innovation​.