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Tencent: How Covid-19 Has Made This Gaming Giant Even Stronger

The Chinese internet giant Tencent Holdings Ltd (SEHK: 700) finally reported the long-awaited first-quarter results last Wednesday and allowed investors to take a look at how its businesses fared under Covid-19.

With the strong revenue growth of 26% year-on-year, it almost makes one wonder if we are living in “a tale of two cities”, amid all the struggles and challenges faced by other companies.

So, how did Tencent do it? Let’s delve into its newly reported financial results below and find out.

Online gaming

As expected, with people staying at home, online gaming is one of the best-performing segments. Its online gaming revenue grew by 31% year-on-year.

To keep the players entertained and connected while they were staying at home, Tencent endeavoured to release new content for the games and improved the games’ quality.

Such efforts led to the growth in players and player engagement and resulted in more users willing to pay for the games.

It has also successfully leveraged its other IPs by running collaborations between its popular game, Peacekeeper Elite (PUBG in China), and Rocket Girls 101, an idol girl group managed by Tencent in China.

In addition to the Chinese market, its massive investment portfolio in overseas gaming companies also bore fruit.

Overseas games and companies such as Brawl Stars (developed by Supercell) and Riot Games also delivered very encouraging results in the gaming industry.

Social networks and digital content

This is the segment where WeChat and QQ, together with the fee-based subscription platforms such as Tencent Video, sit. The segment also achieved very strong results by delivering 23% revenue growth year-on-year.

People resorted to online communications platforms, such as WeChat and QQ, even further during Covid-19 while they stayed at home.

This led to stronger sales via these platforms and more subscriptions to its entertainment services (e.g. for TV drama and music). Tencent also launched new functionalities on these platforms related to eLearning and healthcare services to cater to new users’ needs.

For eLearning, for example, teachers could utilise WeChat and QQ to assist their online teaching by conducting exams and collecting homework.

As such, similar to online gaming, this business segment also benefited significantly from Covid-19.

Online advertising

Online advertising delivered surprisingly strong revenue growth of 32% year-on-year. Before the results announcement, it was generally viewed that this segment would be negatively impacted by Covid-19 as companies cut ad spending.

However, the increased time spent on Tencent’s apps – as people stayed home drew – meant companies put more ads on various digital platforms and this led to stronger than expected revenue growth.

That being said, the segment will continue to face headwinds because of tighter advertising budgets from companies due to economic uncertainties. Furthermore, people will be spending less time using the apps as they start returning to work.

Fintech and business services

Similar to online advertising, this segment also remained resilient and achieved encouraging results by reporting revenue growth of 22% year-on-year.

While Fintech’s business was dragged by reduced offline transactions, it geared towards higher-margin businesses such as wealth management and lending to make up for the drop.

The impact of the delay of the cloud deployment by companies was also offset by Tencent’s successful launch of its remote working platform, Tencent Meeting.

It has become one of the leading video conference apps in China. Its international version, VooV, was also launched in March to target people in overseas countries who needed to work from home.

Despite the initial concerns on this segment, Tencent has proven to be nimble and resilient enough to develop new functions and platforms to cater to the new user needs.

Foolish conclusion

Looking at the results above, Covid-19 has made Tencent stronger and stand out even more, compared to other companies.

With the fear of further outbreaks of Covid-19, Tencent will likely continue to benefit from this trend. This is due to its digital business model and investments, amid the backdrop of increasing digital transformation all over the world.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alec Tseung owns shares of Tencent Holdings Ltd.