On the afternoon of March 23, Tencent Holdings released its 2021 fourth quarter and full-year financial results.
According to the financial report, 2021 full-year, Tencent revenue reached 560.12 billion yuan, up 16% year-on-year, the company's annual profit of 227.810 billion yuan, an increase of 42% year-on-year; non-International Financial Reporting Standards (non-IFRS), the company's equity holders attributable to the profit of 123.788 billion yuan, a slight increase of 1%, the lowest increase in net profit in nearly a decade. a slight increase of 1%, the lowest increase in net profit in nearly a decade. In the fourth quarter, Tencent's net profit (Non-IFRS) was 24.88 billion yuan, a year-on-year decline of 25%, has been two consecutive quarters of net profit decline.
Among them, the game and social network business still accounted for a relatively large proportion of the revenue, as of December 31, 2021, Tencent 2021 social network revenue of 117.3 billion yuan, an increase of 8% year-on-year.
Tencent's value-added services business generated annual revenue of RMB 291.6 billion, up 10% year-over-year. In the local market, annual game revenue was 128.8 billion yuan, up 6% year-over-year. In the international market, annual game revenue was RMB 45.5 billion, an increase of 31% year-over-year.
In the fourth quarter, Tencent revenue of 144.2 billion yuan, the market expected 145.3 billion yuan, an increase of 8% year-on-year; net profit of 94.96 billion yuan, an increase of 60%. Among them, online advertising revenue of 21.5 billion yuan, estimated 23.46 billion yuan; value-added services business revenue of 71.9 billion yuan, estimated 72.73 billion yuan; personal computer client game revenue of 10.6 billion yuan, estimated 10.4 billion yuan. Financial technology and enterprise services revenue of 47.958 billion yuan, an increase of 25% year-on-year.
In terms of minors' anti-sedimentation, in the fourth quarter of 2021, Tencent's total minors' game time decreased by 88% year-on-year, accounting for 0.9% of the total game time in the local market. The total water flow of minors decreased by 73% year-over-year, accounting for 1.5% of the total water flow of games in the local market.
User count, as of December 31, 2021, WeChat and WeChat combined had 1.268 billion monthly active accounts, a 3.5% year-over-year increase. qq mobile had 5. 52 billion monthly active accounts, a 7.2% year-over-year decrease. Tencent video's paid membership grew 1% year-on-year to 124 million, and music paid membership grew 36% year-on-year to 76 million.
The financial report also disclosed that as of December 31, 2021, Tencent has 112,771 employees, an increase of 31.3% year-on-year. 2021 total remuneration was 95.523 billion yuan, an increase of 37.1% year-on-year. According to this projection, Tencent employees per capita monthly salary amounted to 70,500 yuan.
At the post-earnings earnings conference, Tencent Chairman and CEO Ma Huateng said, "2021 was a challenging year, as we actively embraced change and executed initiatives that strengthened the company's long-term sustainability, but impacted the slowdown in revenue growth. Despite the financial impact, we continued to make strategic progress in our business, including popularizing the use of our enterprise software and efficiency office tools, increasing content creation and viewership of our video numbers, and expanding our gaming business in international markets. We believe that China's Internet industry is structurally moving towards a healthier model, returning to its roots centered on user value, technological innovation and social responsibility. We are actively adapting to the new environment, reducing costs and increasing efficiency, and focusing on key strategic areas for long-term sustainable growth."
Local game revenue is growing slower than overseas
Tencent's game revenue consists of two parts, local and international, which will be $128.8 billion and $45.5 billion in 2021, respectively. The growth rates were 6% and 31%, respectively, compared to last year, and the overall game business grew at about 12%. In the fourth quarter, Tencent's local game revenue growth was only 1%, while overseas game revenue growth reached 34%. Overseas game growth momentum is stronger, while the local is relatively weak.
According to the report, local game revenue growth was mainly driven by revenue growth from Honor of Kings, Call of Duty, and End of Days, partially offset by lower revenue from DnF and Peaceful Elite. Overseas game growth was driven by games such as PUBG Mobile, Valorant, Wasteland Chaos and Clash of Clans.
In terms of underage game limitations, the financial report stated that total underage game hours decreased by 88% year-on-year in the fourth quarter of 2021, accounting for 0.9% of the total local game hours, and total underage game water decreased by 73% year-on-year, accounting for 1.5% of the total local game water.
Tencent's president, Kenneth Lau, said in the earnings call that the impact of the protection of minors on revenue growth will be absorbed within 2022, with corresponding new revenues from the release of new game license numbers.
The list of domestic online game license plate approvals has not been updated since July last year, which has also significantly limited Tencent's new game launches.
Liu Chiping also said that at this point, because the new version number has not been announced, the revenue from the domestic game business is not too predictable. But Tencent will accelerate the pace of international game investment and release, increase the penetration of existing IP, and continue to release new games.
It is worth noting that the high growth rate of international games is one of the highlights of Tencent's financial report. According to App Annie's "China Game Makers' Overseas Revenue Ranking" last December, Tencent ranked third on the list.
Tencent's frequent overseas investments include Klei Entertainment, the developer of Hunger and Oxygen Deficiency, Sumo Group, the parent company of Mabuchi Adventure, and Slamfire, the parent company of Turtle Rock Studios, the developer of famous games such as Blood Revenge and Path of Survival. Slamfire, and more.
In addition, Tencent also established Level Infinite, an overseas game brand, at the end of last year, while announcing a number of game products such as Honor of Kings International Edition, Famine: New Home handheld game, Edge of Rebirth, GTFO, and so on, Level Infinite will release game works produced by Tencent Games' studios and other third-party studios, and Level Infinite will distribute games produced by Tencent Games' studios and other third-party studios, and provide technical and R&D support to overseas partner studios.
Digital Real Economy Revenue Becomes a New Growth Engine
Tencent's year-on-year advertising revenue growth rate fell to a single-digit 7.8% in 2021, compared to 20% in 2020, due to tighter regulation and weakness in the macroeconomy and in some of the advertisers' industries.
Among them, social media and other advertising revenue grew 11% year-on-year to 75.3 billion yuan, while media advertising revenue fell 7% to 3.3 billion yuan. The earnings report describes that the former is driven by the growth of WeChat's small program advertisers in the circle of friends, and the latter is driven by the macro-environment and the delay in the release of content and so on.
Online education is Tencent's main advertiser, and the double-decrease policy significantly impacted that part of the revenue. James Mitchell, Tencent's chief strategy officer, said on the call, "Tencent's advertising business has been more impacted than the industry as a whole over the past few quarters, primarily due to the composition of our advertisers, particularly in the online education industry, which accounted for 10 to 15 percent of Tencent's advertising revenue a year ago, compared to 10 to 15 percent a year ago. 15%, and now only 1%-3% in the fourth quarter of last year, which explains the year-on-year decline in advertising revenue in the fourth quarter." But he expects the ad business to return to growth in the second half of 2022 as it adapts to the new regulatory environment.
For the first time, Tencent's fintech and enterprise services became its top revenue sources. In the fourth quarter of 2021, Tencent's financial technology and enterprise services revenue grew 25% year-on-year to 47.958 billion yuan, and for the first time ever, revenue from the digital economy (To B) surpassed that of online games to become Tencent's largest revenue contributor. This means that To B revenue has become a new growth engine for Tencent.
The growth in FinTech service revenue mainly reflected the increase in the amount of commercial payments. The rapid year-on-year growth in enterprise service revenue was due to the digitization of traditional industries and the videoization trend in the Internet industry, as well as the contribution of enterprise service revenue from the consolidation of eCar from November 2020 onwards.
Ma Huateng previously said that since 2015, Tencent has begun to carry out the integration of the Internet and industry, and in 2018, the company formally embraced the industrial Internet after the "930" structural adjustment. In this process, Tencent's position is a digital assistant, providing digital services for all industries.
In the first quarter of 2019, Tencent Holdings for the first time separately disclosed the revenue data of the financial technology and enterprise services segment, which had a revenue of 21.789 billion yuan in the quarter, accounting for 25.5% of the overall revenue, while the proportion of the online game segment was 33.4%. In recent years, Tencent has increased its embrace of the industrial Internet, and has formed industrial digitalization solutions in many areas such as government, finance, education, transportation, health care, smart retail, industry, energy and so on.
The financial report shows that in 2021, Tencent's cost of revenue for the financial technology and enterprise services segment was 120.8 billion yuan, an increase of 32% year-on-year, which is also the fastest-growing business segment of Tencent's cost investment. At this stage, Tencent is actively involved in the construction of the "East counts and West counts", and has invested in the construction of large data centers in Guiyang, Chongqing, Guangdong, Jiangsu and other places.
Over the past year, Tencent Cloud's international data centers in Indonesia, Thailand, Germany, Japan, Hong Kong, and other places have opened one after another, with an overall global operation of 70 availability zones covering 27 geographic regions, and operating more than 1 million servers, providing technical support for the digital transformation of domestic and foreign enterprises.
R&D investment doubled in three years
In 2021, Tencent's R&D investment hit a new high, up 33% year-on-year to 51.8 billion yuan. And in 2018, the company's R&D investment was only 22.936 billion yuan. This means that in a period of three years, Tencent's R&D investment has doubled.
In 2021, Tencent continued to make efforts in independent research and development of core technologies, and realized a number of breakthroughs in the field of chips, operating systems, databases, servers and other technologies.
In terms of chips, for the three major scenarios of AI computing, video processing, and high-performance networks, Tencent has self-researched the AI reasoning chip Zixiao, the video codec chip Canghai, and the smart NIC chip Xuanling, which have industry-leading performance.
At the same time, Tencent and a number of chip companies in-depth cooperation, self-research star sea server. Combined with the rich scenarios of cloud computing, it realizes the strongest performance in the industry and doubles the reliability of the entire machine. Over the past year, the stars of the sea rapid iteration, support for all platforms, multi-scene, scale growth of up to 400 times, became the industry's fastest growing server products after the launch.
In 2021, Tencent also released its sixth-generation 100G cloud server, which adopts a comprehensive self-research technology architecture, with a maximum increase of 220% in computing performance and 300% in network forwarding performance, and has been massively applied in e-commerce, social, gaming, and other business scenarios.
On top of the hardware and software infrastructure, Tencent has built ubiquitous cloud services through public and private clouds as well as customer local clusters. In November of last year, Tencent Cloud officially released Oceanis, the industry's first distributed cloud operating system with full domain governance. Oceanis supports 100,000 servers and millions of containers in a single cluster, and manages more than 100 million CPU cores.
In the database field, Tencent Cloud's database TDSQL released a new Oracle-compatible engine to meet the requirements of rapid on-line financial core; and TDSQL's financial-grade, fully self-researching new sensitivity engine, which can realize unlimited expansion, online changes, and adapt to financial sensitivity business.
At present, Tencent cloud database TDSQL has successfully served more than 500,000 customers, covering finance, government, e-commerce, gaming, helping financial institutions to realize the localization of their core systems, and serving nearly half of the domestic TOP 20 banks.
In the field of audio and video, Tencent Cloud audio and video covers 90% of domestic audio and video customers, and owns 100+ new-generation international coding and decoding patents. 2021, the TRTC backend architecture technology was awarded the China Patent Gold Award, and the ultra-low latency live streaming product "Fast Live" reduces the live streaming latency by up to 10 times, which is the first time in the world that a live streaming product is available. The ultra-low latency live streaming product "Fast Live" reduces the live streaming latency by more than 90%, and the comprehensive quality of service (QoS) far exceeds that of standard live streaming.
According to Tencent Holdings' newly released 2021 R&D Big Data Report, the number of Tencent R&D personnel in 2021 increased by 41% year-on-year. The number of new R&D projects is over 6,000, with an incremental growth of 51% year-on-year in 2020. Over the past three years, Tencent Holdings R&D investment has exceeded 120 billion yuan.
2022 personnel will still grow
Earlier there was news that Tencent's external recruitment plan is being tightened, and part of the business group to open the "optimization".
In April 2021, Tencent formed an "online video BU" based on Tencent Video, Weishi, and AppBao to reduce resource consumption while continuing to plow the video track through the integration of content production, distribution, and application channels.
In February 2022, the main part of Tencent Pictures will be adjusted from the Platform and Content Business Group (PCG) to the Corporate Development Business Group (CDG), and the original IP film and TV development work with strong commercial properties will be handed over to Xinli Media, ReadWrite Film and Television under the ReadWrite Group, as well as Tencent Animation under the PCG, which will be responsible for the work. This is also a kind of resource integration for the latter, fully exploiting the value of the IP of the Levin Group.
These business adjustments don't necessarily mean an overall downsizing of staff, but growth will be relatively limited. The financial report shows that as of December 31, 2021, Tencent has 112,700 employees, an increase of 31.3% year-on-year.
"This year's staff growth will drop significantly, with a much lower increase than the previous two years." Liu Chiping said Tencent's staff reduction plan and organizational restructuring are linked. "Organizational optimization (does not mean shrinkage of inputs), core businesses that are at an advantage will continue to increase inputs, and marginal and loss-making, shrinkable businesses will reduce hiring." Tencent still continues to bring in core tech talent and talented recent graduates, and expects to still grow staff in 2022, he said.
This year, a number of Internet companies and technology companies have pushed for share buybacks, with Ali announcing yesterday that it had raised the size of its buybacks to $25 billion, its largest-ever buyback program. Tencent carried out a wave of intensive repurchase in January this year, from January 5 to January 20 *** counted 11 repurchases, a total of 4,831,400 shares repurchased.
Reduced holdings of Jingdong is Tencent "active" strategy on the other side. At the end of last year, Tencent issued nearly 460 million Class A ordinary shares of Jingdong Group to eligible shareholders in the form of an interim dividend, reducing its stake in Jingdong from 16.9% to 2.2%, and Liu Chiping stepped down as a director of Jingdong.
James Mitchell said Tencent has tens of billions of dollars of investments in different directions over the past few years, and "divestment is not a big deal". He said that Tencent investment will be more inclined to choose privatized companies that are not listed, to help them expand their listing.
The financial report shows that as of December 31, 2021, Tencent's interest in listed investment companies (excluding subsidiaries) has a fair value of 982.8 billion yuan, close to the trillion dollar scale.
In this regard, Liu Kiping said, 2020 and 2021 are Tencent's turning year, the industry is also very competitive, Tencent has taken "aggressive marketing measures to cope with the competition", but with the paradigm shift and other fundamental changes in the Internet industry, the Tencent will carry out wholesale cost optimization, he predicted that the profit margin in 2023 will be better. He predicted that margins would improve in 2023.
As of the close of trading on March 23, Tencent shares rose slightly to HK$389, with a market capitalization of 373.91 billion yuan in Hong Kong. In the U.S., Tencent shares opened lower at $46.88, pulling up to $47.70 as of press time.