Gaming hard carries Tencent through first quarter pandemic

Tencent, the Chinese tech giant and stakeholder in several high-profile games including sole ownership of League of Legends, reported a revenue increase of 26% annually to 108.1 billion yuan ($15.3 billion). This figure surpassed market predictions by an impressive margin, saving the company from feeling the effects of losses in other sectors.

According to an analysis by The Motley Fool, Tencent’s profit margin “grew 6% to 28.9 billion yuan ($4.1 billion), topping expectations by over 5 billion yuan.” The article further explains the nature of the company’s growth, saying that excluding “acquisitions, divestments, and other variable gains and losses, [Tencent’s] net profit rose 29% to 27.1 billion yuan ($3.8 billion).”

Factors in Tencent’s revenue growth

Mobile games drove Tencent’s growth in late 2019, a trend that continued in 2020. Titles like Peacekeeper Elite and Honor of Kings carried the torch, as well as PUBG Mobile and Clash of Clans internationally.

Since the first quarter encompassed the entirety of the COVID-19 quarantine measures in China, users stuck at home boosted in-game sales and ad revenue by a considerable margin. Specifically, online ad revenue showed 32% annual growth, an astonishing leap from the 19% growth reported for in the fourth quarter. Ad growth overall accounted for 16% of Tencent’s gross income figures, which helped make up for revenue declines in the PC gaming and PC cafe sectors since restrictions shuttered many businesses associated with in-person gaming experiences.

Fintech and business services units within Tencent lost steam according to the company’s quarterly report, but with a surging gaming sector, these losses were of minimal impact.

Gaming titles under Tencent’s umbrella

Aside from 100% ownership of Riot Games, which recently expanded its line to include card game Legends of Runeterra, Tencent has a stake in many other major games and developers. Seeing a list of the titles it owns should make it clear why the gaming sector of the company helped profit margins in the first quarter:

• Supercell (Clash of Clans, etc.) – 84.3 percent
• Grinding Gear Games (Path of Exile) – 80 percent 
• Epic Games (Fortnite) – 40 percent 
• Kakao (Korean entertainment and communication firm) – 13.5 percent
• Bluehole (PlayerUnknown’s Battlegrounds) – 11.5 percent 
• Ubisoft – 5 percent 
• Activision Blizzard – 5 percent 
• Paradox Interactive (Cities: Skylines, Crusader Kings) – 5 percent

Tencent expects for their profit margins to “normalize” after the first quarter, with domestic restrictions lifting and the world expecting to return to stasis sooner than later. However, it’s clear that the conglomerate made the right moves when investing in the gaming sector and that it will continue to see profits as a result due to changing consumer behaviors in the first quarter.

Theresa Gaffney

Theresa is a seasoned esports professional with nearly ten years under her belt developing content and running esports teams and leagues. She is currently the head coach for Messiah College's esports program and a freelance industry consultant.

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