Tencent Q2’17 results show explosive growth

Thomas Graziani New WeChat features

Tencent just released their financial results for Q2’17 and they’re impressive:

  • Revenues grew by +59% YOY
  • Operating profits grew by 57% YOY
  • WeChat monthly active users grew to 963 million
  • Ads revenue grew by 55% YOY

As these results were published, both Tencent and Alibaba (which performed equally well) saw their valuation skyrocket close to 400 billion USD.

Let’s look deeper into the numbers.

WeChat’s steady growth

WeChat has been continuing its steady growth to 963 million monthly active users (a 19.5% increase YOY), although growth is slowing down as the App saturates the Chinese market.

In the meantime, QQ faced a more complicated situation with a decrease of MAU’s of 5.4% YOY. However, Tencent states that QQ is seeing growing engagement from core users, and among young people. The company reports that smart device MAU for users aged 21 years or below was up YoY.

Booming revenues

In the meantime revenue has been growing strong for Tencent, at a 59% YOY growth rate:

Operating profits have been following a similar trend at a 57% YOY growth rate:

The source of revenues was quite diverse and balanced, split between PC games, mobile games, digital content, payment and cloud services and online advertising.

Such a revenue distribution appears as healthier as the metrics of Western competitors such as Facebook which still rely on advertising for 95% of their revenue.

What about Alibaba?

Alibaba also released their quarterly results, and they’re no less impressive: the company achieved a 56% YoT growth.

The growth has been mostly driven by e-commerce growth inside China:

Alibaba did particularly well on mobile, adding over 100 million mobile MAU’s over the course of the year on its core-commerce properties.

Cloud computing revenues also doubled to $359 million USD, opening the opportunity to make Aliyun a multi-billion business in its own right (like AWS became for Amazon)

Both Tencent and Alibaba are now nearing a 400 billion market capitalization, not far from their Western rival Facebook (with a market cap close to 500 billion)

Conclusion

The impressive growth of Tencent and Alibaba show that there are still significant growth opportunities for tech companies in mainland China. They also prove that Chinese companies can achieve valuations similar to Western competitors with a more global reach. And they do so with a more diverse and healthy stream of revenues.

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