Total annual revenues for China internet giant Tencent were up 38 per cent to $9.9bn, with operating profit up 24 per cent to $3.1bn. Whilst fourth quarter results show a year-on-year increase of 40 per cent for revenues and 28 per cent for operating profit, there was a much lower quarter-to-quarter growth of just 9 per cent for revenue and a decrease of 1 per cent for operating profit.
“During 2013, we achieved sustained growth in revenue and earnings, while further embracing mobile internet and starting mobile monetization,” said Ma Huateng, Chairman and CEO of Tencent. “We enhanced our market-leading Weixin/WeChat app from a communications tool to a multi-functional platform, through initiatives such as smart phone games, Official Accounts, and Weixin Payment.”
At the end of the year, Tencent reported 355 million monthly active users for Weixin/WeChat. Whilst that was up 121 per cent year on year, it was only a 5.7 per cent increase over Q3’s total – the service’s lowest quarterly growth since it launched. So is the messaging service reaching a plateau, is the end in sight for its phenomenal growth?
As well as WeChat (which is known locally as Weixin), the Internet firm also offers the QQ messaging service, the Qzone social media site, gaming platforms and ecommerce services.
When you add up all of Tencent’s active monthly Instant Messaging customers, across all of its services, you get 808 million for the year end – that’s an increase of just 1 per cent from this time a year ago, and a decrease of 1 per cent from Q3. Its Qzone social media users only increased 4 per cent year on year, and a mere 0.3 per cent from Q3.
The company said that “user account growth decelerated as users continued to shift their traffic from PC to mobile devices because fewer mobile users than PC users employ multiple accounts”. In other words, “active users” doesn’t necessarily mean “individual users” – it means “accounts”.
The key to future growth is to break free of the domestic market and launch its services internationally. The company said that in international markets, “WeChat achieved robust aggregate user growth”, but that it is now focused on “driving engagement in specific target geographic regions”. Specific details of this robust growth, and the geographic regions in question, were absent from its annual report.
“We will further expand our mobile leadership via app distribution; invest in long term opportunities such as online video, online payment and WeChat international expansion; and deepen our integration with key strategic partners,” added Ma Huateng.
Tencent is engaged in a battle for investors, ahead of local rival Alibaba’s forthcoming US-based IPO. So far, the company is maintaining a high valuation, and its proposed stock split would encourage wider appeal to investors. Its own IPO on the Hong Kong exchange raised HK$1.55bn back in 2004, and shares have gone on to increase by 153 per cent in value.
Facebook recently bought rival messaging service WhatsApp and its 450 million users for $19bn, whilst Japan’s Rakuten is buying Viber and its 300 million users for $900 million.
Meanwhile, the popularity in China of OTT services like WeChat is impacting financially on the country’s telcos.
China Mobile – the world’s largest mobile phone carrier by subscribers – has just published its annual accounts for 2013 and has reported its first drop in annual net profit in more than a decade. Annual net income fell 5.9 per cent to $19.5bn, thanks in part because of a weak fourth quarter (Q4 net profit down 16 per cent year-on-year).
The telco has struggled since 2008 to achieve even a modest 5 per cent growth in net profits. Whilst China Mobile can cite high 4G roll-out costs, handset subsidies and competition from China Unicom and China Telecom as reasons behind the decline, it is also being hit hard by the OTT companies – including Tencent.
“As a crucial year of transformation, 2013 brought new opportunities for the Group, underpinned by China’s steady economic growth, the government’s promotion of information consumption, and the issuance of 4G license,” said China Mobile chairman Xi Guohua in a letter to shareholders. “We also faced a number of challenges, including the further accelerated substitution effect of OTT products on the traditional communications business, and a more saturated traditional communications market with fiercer competition, all of which added to the Group’s operational pressure.”
The telco also confirmed its commitment to TD-LTE, aiming to become the world’s largest 4G network with 500,000 base stations by the end of 2014. It will also accelerate VoLTE live network testing to achieve commercialisation of VoLTE by the end of this year.
“We will build new business access in the mobile Internet era through a unified communications service with the features of New Call, New Messaging, New Contacts,” added Xi Guohua. “We will push forward with the transition of business development from voice to data, maintaining and creating competitive advantages.”
Alibaba has just announced that it is spending $215 million for a minority stake (believed to be 20 per cent) in California-based messaging startup Tango, valuing the company at $1.1bn. Never a dull moment in the OTT messaging space...
See today's: Are telcos getting the message?
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