Tencent Announces Ramping Up of Social Ad Load in Strong Q1 Results

Chinese tech giant Tencent announced today a steady increase of the ad load on its social media platform WeChat today as it released Q1 financial results which exceeded investors’ expectations, with the company delivering record quarterly profits. The results demonstrate continued growth of the company’s core offerings, with WeChat surpassing one billion users, but also outlined the increasing importance of digital advertising, and specifically video advertising, to the company.

Tencent recorded a 61 percent year-on-year increase in net income, with profits rising to 23.3 billion yuan ($3.7 billion), a figure roughly 33 percent greater than investors had anticipated. The strong profits were especially significant for the company since investors had feared that Tencent’s high levels of spending would dent its profitability, fears which have seen the company’s stock drop by over 15 percent since the end of January.

Unlike the western giants of Facebook and Google, digital advertising is not Tencent’s main income stream, with its gaming business still its primary source of revenue. However, while mobile gaming is growing, PC gaming revenues are broadly stable, and Tencent says digital advertising is becoming an increasingly important part of its business.

Digital advertising revenues for the company grew 55 percent year on year to 10.7 billion yuan, accounting for over 14 percent of total revenue. Social ad revenue has increased particularly quickly, growing 69 percent year on year to over seven billion yuan.

Tencent has been hesitant previously to overload its social networks with ads, but said it will begin increasing its ad load to meet demand. “To cater to the strong demand for social advertising on our platforms, Weixin Moments (a news feed similar to Facebook’s) increased its maximum ad load to two advertisements per user day in late March,” said the company in a statement.

A maximum of two ads a day is still very conservative compared to most other social platforms, a fact which Tencent claims gives it “a long runway for continued growth of our social and advertising”.

Video specifically was credited as a key component of Tencent’s ad revenue growth. “Video ad revenues increased 64 percent year-on-year due to more pre-roll ads benefiting from the growth in video views, and our enhanced capability to develop creative ad formats within original productions,” said Tencent.

Tencent’s paid video services also saw healthy growth, and were in fact stated as one of the key growth drivers in the ‘Value Added Services’ category, which includes Tencent’s video game businesses. “The increase primarily reflected growth in revenues from digital content services such as live broadcast, video streaming subscriptions and our music service, namely WeSing, as well as from in-game virtual item sales,” said Tencent. Total video revenues for Tencent’s subscription services grew 75 percent year-on-year.

Video grew particularly sharply on Tencent’s messaging platform QQ. “QQ KanDian, our news feed service within QQ, achieved over 80 million DAU (daily average users). It enhanced recommendation for short videos, driving video views to increase by 300 percent year-on-year,” said the company.

As well as placing further reliance on ad revenues, Tencent is looking to diversification to drive further growth, and is also taking initial steps towards expanding abroad. The company has said it is “not in a hurry” to expand globally, but is working towards making its WeChat ecosystem available in Malaysia, and last week signed a deal with the UK government to work on TV content with the BBC.

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