Back to top

Image: Bigstock

Tencent (TCEHY) Q4 Earnings Top Estimates, Revenues Rise Y/Y

Read MoreHide Full Article

Tencent Holdings (TCEHY - Free Report) reported fourth-quarter 2020 non-GAAP earnings of 52 cents per share that beat the Zacks Consensus Estimate by 4%.

Also, revenues of $20.1 billion beat the consensus mark by 3.4%.

In local currency, non-IFRS (formerly referred to as non-GAAP) earnings were RMB3.4 per share.

Revenues of RMB133.7 billion increased 26.4% from the year-ago quarter, driven by steady performance of FinTech services, smart phone games, as well as social and other advertising verticals.

Top-Line Details

Value Added Services (“VAS”) revenues (50.1% of total revenues) rose 28% year over year to RMB67 billion.

Online games revenues grew 29% year over year to RMB39.1 billion, among which international games revenues were RMB9.8 billion, up 43% on a year-on-year basis. The increase primarily reflected revenue contributions from smart phone games including Peacekeeper Elite, Honour of Kings, PUBG Mobile and recently launched titles such as Moonlight Blade Mobile.

Total smart phone games revenues (including smartphone games revenues attributable to social networks business) were RMB36.7 billion and PC client games revenues were RMB10.2 billion for the fourth quarter of 2020.

Social networks revenues increased 27% year over year to RMB27.9 billion. The increase was mainly driven by revenue growth from digital content services including the consolidation impact of HUYA’s live broadcast services, music and video subscription services, as well as from in-game virtual item sales.

Tencent Holding Ltd. Price, Consensus and EPS Surprise

Tencent Holding Ltd. Price, Consensus and EPS Surprise

Tencent Holding Ltd. price-consensus-eps-surprise-chart | Tencent Holding Ltd. Quote

FinTech and Business Services revenues (28.8% of total revenues) grew 28.7% year over year to RMB38.5 billion. This upside was driven by revenue growth from commercial payment and wealth management services, resulting from increased volume of transactions and value per transaction.

During the reported quarter, the company deepened market presence in verticals such as municipal services, financial services and Internet services which contributed to Business Services revenues. Moreover, the company began to consolidate Bitauto’s Business Services revenue during the fourth quarter of 2020.

Online advertising revenues (18.4% of total revenues) were up 21.9% from the year-ago quarter to RMB24.7 billion. The increase was primarily due to rising demand from advertiser categories such as education, eCommerce platforms and fast-moving consumer-goods, as well as consolidation of Bitauto’s advertising revenue.

Social and others advertising revenues grew 25% year over year to RMB20.4 billion. The increase primarily reflected more advertiser demand for Weixin Moments inventory, and for customized in-app advertising solutions offered by Tencent’s mobile advertising network.

Moreover, media advertising revenues increased 8% to RMB4.3 billion. The increase was mainly driven by the company’s music streaming apps, as well as contributions from Tencent Video due to airing of popular drama series.

Others revenues (2.6% of total revenues) increased 6.8% year over year to RMB3.5 billion.

User Base Details

In fourth-quarter 2020, combined monthly active users (MAUs) of Weixin and WeChat increased 5.2% year over year to 1.22 billion. However, smart device MAU of QQ declined 8.1% to 594.9 million.

Weixin reported over 1.2 billion users globally. The company stated that each day, more than 120 million users post in Moments, 360 million users read Official Accounts articles and 400 million users access Mini Programs.

During the fourth quarter of 2020, minors aged under 18 years accounted for 6% of Tencent’s China online game gross receipts. Among which, minors aged under 16 years accounted for 3.2% of China online game gross receipts.

Honour of Kings was the top-grossing mobile game worldwide for the second consecutive year in 2020 and continued as the most popular mobile game in China by MAU. League of Legends attracted over 45 million peak concurrent viewers for its 2020 World Championship Finals, setting a record viewership for a games eSports event. The rollout of League of Legends’ mobile version, Wild Rift, further expanded its franchise user base.

Moreover, PUBG Mobile ranked as the most popular mobile game in international markets by MAU for the second consecutive year in 2020, according to App Annie as cited by Tencent. The PUBG Mobile Global Championship became the most viewed e-sports tournament of mobile games.

Tencent’s partnership with Nintendo extended its home entertainment offerings to consoles. By the end of 2020, the company has distributed over 1 million Switch consoles and published a dozen popular Switch titles in China.

Fee-based VAS subscriptions grew 22% year over year to 219 million. Tencent Video subscriptions were 123 million, benefiting from the release of popular anime IPs and drama series.

Operating Details

Gross profit was up 27.7% year over year to RMB58.9 billion. Gross margin expanded 50 basis points (bps) on a year-over-year basis to 44%.

Selling and marketing expenses increased 49.5% year over year to RMB10 billion. General and administrative expenses increased 23.6% year over year to RMB19.8 billion.

Adjusted EBITDA increased 20.6% year over year to RMB46.5 billion. Adjusted EBITDA margin contracted 170 bps on a year-over-year basis to 34.8%.

Non-GAAP operating profit grew 25.7% year over year to RMB38.1 billion. Operating margin contracted 20 bps year over year to 28.5%.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash and cash equivalents of the company were RMB152.7 billion compared with RMB152.4 billion on Sep 30, 2020.

As of Dec 31, 2020, net cash was RMB11.02 billion compared with net cash of RMB6.3 billion on Sep 30, 2020.

Free cash flow decreased 11% year over year to RMB27.6 billion.

Zacks Rank and Stocks to Consider

Currently, Tencent has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Etsy, Inc. (ETSY - Free Report) , Applied Materials, Inc. (AMAT - Free Report) and Agilent Technologies, Inc. (A - Free Report) . While Etsy currently sports a Zacks Rank #1 (Strong Buy), Applied Materials and Agilent carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Etsy, Applied Materials and Agilent are pegged at 25.2%, 13.7% and 9%, respectively.

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>