China’s Tencent Holdings (0700.HK) reported a 6% increase in first-quarter revenue on Tuesday, surpassing analyst expectations, thanks to strong growth in business services and advertising sales.
However, the recovery in its gaming sector, which contributes nearly half of its total profit, remained sluggish, highlighting the challenges the world’s largest video game company faces in revamping its game portfolio.
As China’s largest internet company and the operator of the WeChat messaging platform, Tencent reported revenue of 159.5 billion yuan ($22.04 billion) for the quarter ending March 31, exceeding the 158.44 billion yuan average forecast by 19 analysts polled by LSEG.
This marks the fifth consecutive quarter of revenue growth for Tencent, following Beijing’s regulatory crackdown in 2022. While its business services and advertising revenue continue to grow, the core gaming segment is experiencing a notable slowdown as the popularity of its top titles wanes.
Domestic gaming revenue fell 2% to 34.5 billion yuan in the first quarter. Both of Tencent’s leading games, Honor of Kings and Peacekeeper Elite, saw significant revenue declines. However, international gaming revenue grew by 3% year-over-year to 13.6 billion yuan.
Online advertising revenue surged 26% to 26.5 billion yuan, driven by upgrades to Tencent’s ad infrastructure and the increased commercialization of its short video platform, WeChat Video Accounts, a competitor to ByteDance’s TikTok-like app Douyin in China.
Tencent also noted improvements in its advertising technology, offering generative AI-powered tools to advertisers.
Revenue from fintech and business services increased by 7% to 52.3 billion yuan, as Tencent’s suite of payment, e-commerce, and productivity software and services continued to gain traction in China.
