MoonFox Analysis | How WeChat Channels Burdens of Tencent's Hopes for the Future Amidst Rapid Commercialization
MoonFox Analysis reports on the significant role of WeChat Channels in Tencent's recent financial growth. For Q1 2024, Tencent's revenue increased 6% YoY to RMB 159.501 billion, and net profit soared by 54% YoY to RMB 50.265 billion. WeChat Channels contributed notably to this growth, with user engagement up by over 80% YoY. The platform has expanded its offerings, including e-commerce and local life services, driving increased user activity and commercial value.
WeChat's monthly active users reached 1.02 billion, a YoY increase. The gross merchandise volume (GMV) for WeChat Channels grew nearly threefold in 2023, with increased product supply and brand participation. WeChat Channels is also testing new features to enhance e-commerce and local life services. As Tencent continues to develop WeChat Channels, it aims to attract more advertisers and brands, leveraging its vast user base and integrated platform features.
- Net profit increased by 54% YoY to RMB 50.265 billion in Q1 2024.
- Revenue rose 6% YoY to RMB 159.501 billion in Q1 2024.
- WeChat Channels user engagement up by 80% YoY in Q1 2024.
- Gross merchandise volume (GMV) for WeChat Channels nearly tripled in 2023.
- WeChat's monthly active users reached 1.02 billion, a YoY increase.
- Operating profit increased by 38% YoY to RMB 52.6 billion.
- WeChat Channels contributed significantly to Tencent's gross profit increase of 23% YoY.
- Tencent Games business continues to show YoY negative revenue growth.
- Potential challenges for WeChat Channels include competition from TikTok and Meituan.
- Increasing reliance on WeChat Channels for revenue growth may pose risk if performance falters.
Insights
Tencent's financial performance in Q1 2024 is quite impressive, with the company reporting notable increases in both revenue and net profit. Specifically, a 54% YoY increase in net profit and 6% YoY revenue growth are significant achievements. While Tencent Games continues to struggle with negative YoY growth, the company's efforts in online advertising, financial technology and enterprise services have contributed substantially to overall growth.
The major takeaway for investors is the impact of WeChat Channels on Tencent's financials. The platform has driven the company's profitability, contributing to a 23% YoY increase in gross profit. The gross profit margin also improved from 45% to 53%. These metrics indicate that WeChat Channels are not only boosting revenue but also enhancing efficiency and profitability.
For retail investors, it's important to note that while the growth in digital and financial services is promising, the persistent decline in gaming revenue could signal a need for diversification. Investors should monitor how Tencent balances its various segments and continues leveraging WeChat Channels to sustain profitability.
WeChat Channels’ rapid user growth and increased activity are pivotal. The 80% YoY increase in user engagement on the platform highlights its rising importance within the WeChat ecosystem. With Tencent recognizing WeChat Channels as the 'Hope of the Tencent,' it underscores the strategic importance of this platform in driving future growth.
From a market perspective, the aggressive commercialization of WeChat Channels, especially the integration of e-commerce and local life services, positions Tencent to capture significant market share. The reported 300%+ growth in GDP and the extensive expansion of e-commerce functionalities provide a diversified revenue stream, enhancing Tencent's competitive edge against rivals like Meituan and TikTok in the local life services sector.
Investors should consider the long-term potential of WeChat Channels as it continues to expand its ecosystem. The platform's ability to attract small and medium-sized brands and its competitive service fees could lead to sustained user and revenue growth, making it a critical asset for Tencent's future market positioning.
From a technological standpoint, WeChat Channels' continuous optimization and feature expansion are crucial. Introducing capabilities like direct access to WeChat Channels Shop from Moments and Ads is a strategic move to enhance user experience and drive commercial engagement. This feature integration leverages WeChat's extensive user base, facilitating seamless transitions between social interactions and commercial transactions.
Furthermore, the platform's focus on privacy, as seen with the introduction of virtual accounts, is likely to build user trust and compliance, essential for long-term success in e-commerce. The emphasis on paid live streaming and content marketing functionalities also adds value for content creators and advertisers, fostering a robust and diverse ecosystem.
For retail investors, the technological advancements on WeChat Channels suggest a forward-thinking approach by Tencent. These innovations not only enhance user engagement but also provide new monetization avenues, reinforcing Tencent's market position and driving future revenue growth.
About us: Aurora Mobile (NASDAQ: JG) established in 2011, is a leading customer engagement and marketing technology service provider in China. Its business includes notification services, marketing growth, development tools, and data products. As its sub-brand, MoonFox Data is a leading expert in data insights and analysis services across all scenarios, aiming to help companies gain market insights and empower precise decision-making.
On May 14th, Tencent Holdings released its Financial Report for the First Quarter of 2024. The report shows that Tencent's revenue in the first quarter was
Having been launched for four years, WeChat Channels has now grown into the "Hope of the Tencent". In its latest financial report, Tencent stated that services including WeChat Channels and Search Ads, Game Applet platform service fees, and Channels merchant technology service fees contributed to an increase in Tencent's gross profit & operating profit that exceeded its revenue growth. Tencent's Q1 gross profit increased by
In the first quarter of 2024, the total user' usage duration of WeChat Channels increased by over
II. Four-Year Transformation for WeChat Channels: Commercialization Exploration and User Value Enhancement within WeChat
The growth of WeChat Channels is inseparable from the strong support of WeChat. According to MoonFox iApp data, in the first quarter of 2024, WeChat's monthly active user(MAU) base reached 1.02 billion, an YoY increase of 4.122 million. In terms of user stickiness, WeChat's average daily launches per user in the first quarter was 21.9 times, an YoY increase of 2.1 times.
Changes in WeChat MAU and Average Daily Launches per User in Q1 2024
MAU | Average Daily Launches per User | |
January 2023 - March 2023 | 1.014 billion | 19.8 times |
January 2024 - March 2024 | 1.018 billion | 21.9 times |
Data Source: MoonFox iApp; |
Data Period: January 2023 - March 2023, January 2024 - March 2024 |
As a member of the WeChat ecosystem, WeChat Channels has been constantly drawing on WeChat's strong vitality over the past four years, inheriting and expanding WeChat's massive and deep user base. The continuous enrichment and optimization of WeChat Channels' commercial functions have also brought about an increase in user engagement and interaction frequency, which in turn has contributed to the growth of WeChat's user base and activity levels.
Regarding the exploration and expansion of WeChat Channels' commercial functions, it initially facilitated private connections by integrating with WeCom, building a convenient communication bridge between users and enterprises. Later, with the addition of the "Products" tab, WeChat Channels introduced a brand-new shopping experience for users. Subsequently, the launch of content marketing functions transformed WeChat Channels into an efficient advertising platform for advertisers, while also providing users with more diverse content choices.
Timeline for WeChat Channel Launching Key Commercial Functions
Private Connection |
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E-commerce |
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Content Marketing |
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Knowledge |
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Local Life |
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Source: Public information, compiled by MoonFox Research Institute |
In 2022, WeChat Channels took a step further into knowledge monetization by introducing paid live streaming, allowing creators to monetize their premium content while satisfying users' demand for high-quality content. In 2023, WeChat Channels set its sights on the local life services sector, testing local life services and providing users with a more convenient and practical living experience.
III. Initial E-commerce Dividends, Multiple Operational Initiatives Accelerate WeChat Channels' Commercialization Process
In 2024, the commercialization layout of WeChat Channels is accelerating, and the e-commerce business, as its important component, is unleashing enormous dividends. Previously, WeChat officially disclosed that in 2023, the GMV (Gross Merchandise Volume) of WeChat Channels achieved nearly a threefold increase, its number of orders grew by over
E-commerce Performance of WeChat Channels in 2023
GDP Growth | |
Order Growth | |
Product Supply Growth | |
Brand GMV Growth | |
Brand Number Growth | |
Number of Service Providers | 3000+ |
Source: Public information, compiled by MoonFox Research Institute |
WeChat Channels continuously roll out and refine various commercialization functions, gradually building a diversified e-commerce ecosystem and releasing more and more dividends for content creators, merchants, and users. The e-commerce business of WeChat Channels not only provides merchants with a new sales channel but also offers users a more diverse and convenient shopping experience. With the launch and optimization of more innovative functions in the future, WeChat Channels is expected to become an important platform connecting users, merchants, and content creators, further promoting the development and prosperity of the e-commerce business. It is reported that WeChat Advertising is currently testing a new capability that allows direct access to WeChat Channels Shop from Moments and Ads, bringing new UV growth paths for merchants operating the Shop.
Key Stages in the E-commerce Development of WeChat Channels
Function Updates - Building E- | Regulation and Governance - | KOLs Operations - Resource |
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Source: Public information, compiled by MoonFox Research Institute |
IV. Venturing into Local Life Services, New Blue Ocean Battle with Meituan and TikTok
On April 29th, WeChat Channels released policies for local life service merchants to join the platform, including two top-level categories of dining, tourism & hotel, with nine second-level categories such as full-service restaurants, fast food, bakeries & snacks, accommodation, and scenic spots. Currently, only chain restaurant brands are allowed to join the dining category, and there are also restrictions for the tourism & hotel category, such as the scenic spots in only AAAA-level and above to be permitted to join. In terms of fees, local life service merchants joining WeChat Channels in 2024 can enjoy a preferential
As the engine driving WeChat's commercialization and Tencent's revenue growth today, WeChat Channels shoulders the critical task of expanding its reach. The reason why the local life services sector has re-entered the sights of internet giants after the "thousand-team battle" and the "food delivery battle" have quieted down is quite simple: it is almost the last "blue ocean" in the domestic consumer internet market.
The appearance of WeChat Channels has intensified competition in the local life service sector. The advantages of WeChat Channels lie in its massive user base and the convenience of WeChat Pay. WeChat Channels can leverage WeChat's social network to provide local life service merchants with more exposure opportunities. At the same time, the widespread adoption of WeChat Pay also makes it more convenient for users to consume on WeChat Channels. However, WeChat Channels also faces challenges. First, it need to find its positioning between TikTok and Meituan to avoid being caught in the middle of the competition. Second, it needs to figure out how to transition users from WeChat's social scenarios to local life consumption scenarios. Finding its advantages in the competition and providing better services will be the main challenges that WeChat Channels is facing.
V. How Rapidly Growing UV Leads Brand Advertisers to Tap into Opportunities?
Fundamentally, all internet businesses are ultimately UV businesses. Especially as mobile internet dividends peak and UV costs continue to soar, finding new "blue ocean" has become a consideration for many brands, and WeChat Channels is precisely that rapidly growing market.
In the first quarter of 2024, the UV dividends of WeChat Channels allowed advertisers to see a new "blue ocean". Previously, Tencent had mentioned that advertisers had a strong demand for WeChat Channels Ads, and it would gradually increase the advertising share of WeChat Channels in the future. According to the data released by Tencent, advertisers seem to favor WeChat Channels as well. In 2023, Tencent's advertising business revenue reached
At the same time, the official WeChat Channels team continues to roll out various incentive policies like introducing more UV. With a series of actions, the development of WeChat Channels will be further accelerated. For advertisers, this may present an opportunity to overtake others in live streaming e-commerce. With the upcoming 618 Shopping Festival, all parties are competing to layout their strategies, and it is expected that WeChat Channels will also introduce various incentive policies in succession, which will also be an opportunity for it to further flex its muscles and demonstrate its capabilities. This battle may attract more brands to join the platform. For the future, let's wait and see what kind of results WeChat Channels will deliver in the next quarterly financial report.
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SOURCE Aurora Mobile Ltd
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