Quarterly Ad Revenues Jump 45% at Chinese Internet Giant Tencent

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WeChat's welcome screen
WeChat's welcome screen Credit: WeChat

Chinese internet giant Tencent Holdings said fourth-quarter ad revenues jumped 45% from the same period a year earlier. The company now gets nearly a fifth of its revenues from advertising, a growing opportunity at a company long powered by its popular online and mobile games.

Tencent was just named the most valuable brand in China in a BrandZ ranking by WPP and Kantar Millward Brown. Its star product is all-purpose app WeChat (called Weixin in Chinese), which is a mobile toolkit for everything from payments to chat to services. The company said WeChat has amassed 889 million monthly active users; the majority of those are presumed to be in mainland China, since the app hasn't caught on overseas like the company once hoped.

Tencent's overall quarterly sales, including everything from ads to its top-grossing Honor of Kings game, hit $6.37 billion, up 44% year-on-year. Quarterly net profit jumped 46% to about $1.53 billion.

The company said revenue from online advertising reached $1.2 billion in the fourth quarter, up 45% from a year earlier. Advertising on WeChat's newsfeeds was one source of growth; the company said the number of advertisers on the newsfeed, called Moments, has more than doubled in the past four months.

Tencent has been careful not to flood WeChat Moments with ads, and users typically see just one a day there targeted to their demographic, like a clickable video spot for Apple iPhones, Reebok sneakers or a new movie release.

Performance advertising -- like the WeChat advertising or ads attached to mobile news -- powered growth. There was concern about lackluster growth in brand ads, such as video ads in entertainment content. Performance-based advertising grew 77% in the quarter, while brand ads were up only 11%, the company said.

That's partly because brand-oriented advertisers have been switching to performance ads, said James Mitchell, Tencent's chief strategy officer. He also said many Tencent users were signing up for video subscriptions, a more high-margin business, but a shift that means viewers are served with fewer pre-and mid-roll ads. He didn't blame China's slowing economy, which had growth of 6.8% in the fourth quarter, according to government figures.

"It's always nice to blame one's challenges on the macro environment," Mr. Mitchell told a conference call. "But in reality the Chinese macro environment I think has been fairly healthy the last few months."

Mobile payment is much more developed in China than in the West, and Tencent has also put a focus on building a platform to rival Alipay, the payment service affiliated with Alibaba Group. The company said it logged over 600 million average daily transactions in December, up 92% year-on-year.

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