Tencent Announces 2021 Second Quarter and Interim Results

Rhea-AI Summary

Tencent Holdings Limited reported strong financial results for the first half and second quarter of 2021. Total revenues reached RMB273.6 billion (USD42.3 billion), a 23% year-on-year increase, while non-IFRS profit attributable to equity holders grew 17% to RMB67.2 billion (USD10.4 billion). Operating profit on an IFRS basis surged 42% to RMB108.8 billion (USD16.8 billion), reflecting a robust operating margin of 40%. The company's cash reserves stood at RMB255.2 billion (USD39.5 billion) at the end of June 2021. Key growth areas included FinTech services, online advertising, and video games.

Positive

• Total revenues increased by 23% year-on-year, reaching RMB273.6 billion (USD42.3 billion).
• Non-IFRS profit attributable to equity holders grew by 17% to RMB67.2 billion (USD10.4 billion).
• IFRS operating profit surged 42% to RMB108.8 billion (USD16.8 billion).
• FinTech and Business Services revenues increased by 40% year-on-year.
• Strong performance in online advertising with a 23% revenue increase to RMB22.8 billion.

Negative

• Operating margin decreased to 31% from 33% year-on-year in 2Q2021.
• Net margin declined to 25% from 27% year-on-year in 2Q2021.
• Free cash flow dropped 39% year-on-year.

HONG KONG, Aug. 18, 2021 /PRNewswire/ -- Tencent Holdings Limited ("Tencent" or the "Company", 00700.HK), a leading provider of Internet value added services in China, today announced the unaudited consolidated results for the second quarter ("2Q2021") and first half year of 2021 ("1H2021") ended June 30, 2021.

1H2021 Key Highlights

Revenues: +23% YoY, non-IFRS^[1] profit attributable to equity holders of the Company: +17% YoY

• Total revenues were RMB273.6 billion (USD42.3 billion^[2]), an increase of 23% over the first half year of 2020 ("YoY").
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profit was RMB85.6 billion (USD13.2 billion), an increase of 17% YoY. Operating margin decreased to 31% from 33% last year.
- Profit for the period was RMB69.6 billion (USD10.8 billion), an increase of 18% YoY. Net margin decreased to 25% from 27% last year.
- Profit attributable to equity holders of the Company for the period was RMB67.2 billion (USD10.4 billion), an increase of 17% YoY.
-  Basic earnings per share were RMB7.055. Diluted earnings per share were RMB6.916.

• On an IFRS basis:

- Operating profit was RMB108.8 billion (USD16.8 billion), an increase of 42% YoY. Operating margin increased to 40% from 34% last year.
- Profit for the period was RMB92.0 billion (USD14.2 billion), an increase of 49% YoY. Net margin increased to 34% from 28% last year. 
- Profit attributable to equity holders of the Company for the period was RMB90.4 billion (USD14.0 billion), an increase of 46% YoY.
- Basic earnings per share were RMB9.492. Diluted earnings per share were RMB9.299.

• Total cash were RMB255.2 billion (USD39.5 billion) at the end of the period.

2Q2021 Key Highlights

Revenues: +20% YoY, non-IFRS profit attributable to equity holders of the Company: +13% YoY

• Total revenues were RMB138.3 billion (USD21.4 billion), an increase of 20% over the second quarter of 2020 ("YoY").
• On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profit was RMB42.8 billion (USD6.6 billion), an increase of 14% YoY. Operating margin decreased to 31% from 33% last year.
- Profit for the period was RMB35.1 billion (USD5.4 billion), an increase of 13% YoY. Net margin remained decreased to 25% from 27% last year.
- Profit attributable to equity holders of the Company for the quarter was RMB34.0 billion (USD5.3 billion), an increase of 13% YoY.
- Basic earnings per share were RMB3.574. Diluted earnings per share were RMB3.504.

• On an IFRS basis:

- Operating profit was RMB52.5 billion (USD8.1 billion), an increase of 34% YoY. Operating margin increased to 38% from 34% last year.
- Profit for the period was RMB43.0 billion (USD6.7 billion), an increase of 33% YoY. Net margin increased to 31% from 28% last year. 
- Profit attributable to equity holders of the Company for the quarter was RMB42.6 billion (USD6.6 billion), an increase of 29% YoY.
- Basic earnings per share were RMB4.472. Diluted earnings per share were RMB4.387.

[1] Non-IFRS adjustments (formerly referred as non-GAAP) excludes share-based compensation, M&A related impact such as net (gains)/losses from investee companies, amortisation of intangible assets and impairment provision/(reversals), as well as income tax effects. [2] Figures stated in USD are based on USD1 to RMB6.4601

Mr. Ma Huateng, Chairman and CEO of Tencent, said, "In the quarter, we enhanced our services and achieved healthy growth rates across our business lines, particularly Business Services and advertising, while our game revenue benefitted from international growth. We are increasingly deploying our technologies and expertise to help SMEs, public services, corporations collaborate internally, and connect with their users externally, which we believe contributes to the real economy and to society at large. During the recent Henan floods, Tencent Docs, our cloud-based productivity solution, played a valuable role assisting people providing and seeking help, thanks to its collaborative data editing functionality."

2Q2021 Financial Review

Revenues from VAS increased by 11% to RMB72.0 billion for the second quarter of 2021 on a year-on-year basis. Games revenues increased by 12% to RMB43.0 billion, primarily driven by the increase in revenues from games such as Honour of Kings, PUBG Mobile, Valorant, Clash of Clans and Moonlight Blade Mobile, partly offset by the decrease in revenues from Peacekeeper Elite. Mobile games VAS revenues (including mobile games revenues attributable to our social networks business) increased by 13% to RMB40.8 billion, while PC client games revenues grew by 1% to RMB11.0 billion for the second quarter of 2021. Social networks revenues grew by 9% to RMB29.0 billion, mainly due to revenue growth from digital content services, as well as in-game virtual item sales.

Revenues from Online Advertising increased by 23% to RMB22.8 billion for the second quarter of 2021, reflecting rising demand from advertiser categories such as Internet services and consumer staples, as well as consolidation of Bitauto's advertising revenue, which outweighed weakness in education. Social and others advertising revenues grew by 28% to RMB19.5 billion, due to increased adoption of Mini Programs as landing pages, more video advertising inventories inside Weixin Moments, as well as revenue growth from our mobile advertising network. Media advertising revenues were RMB3.3 billion, broadly stable compared to the second quarter of 2020, as greater advertising revenues from our music apps offset lower news advertising revenues.

Revenues from FinTech and Business Services increased by 40% to RMB41.9 billion for the second quarter of 2021 on a year-on-year basis. FinTech Services revenue growth primarily reflected increasing digital payment transactions. Business Services revenues increased rapidly year-on-year, due to digitalisation of public services and traditional industries, as well as consolidation of Bitauto's Business Services revenue.

Other Key Financial Information for 2Q2021

EBITDA was RMB44.6 billion, up 10% YoY. Adjusted EBITDA was RMB50.3 billion, up 15% YoY.

Capital expenditures were RMB6.9 billion, down 27% YoY.

Free cash flow was RMB17.3 billion, down 39% YoY.

As at June 30, 2021, net debt position totalled RMB21.0 billion. Fair value of our stakes in listed investee companies (excluding subsidiaries) totalled RMB1,446.0 billion, compared to RMB1,362.3 billion as of March 31, 2021, and RMB726.2 billion as of June 30, 2020.

Operating Metrics

	As at 30 June 2021	As at 30 June 2020	Year- on-year change	As at 31 March 2021	Quarter-on-quarter change
	(in millions, unless specified)
Combined MAU of Weixin and  WeChat	1,251.4	1,206.1	3.8%	1,241.6	0.8%
Mobile device MAU of QQ	590.9	647.6	-8.8%	606.4	-2.6%
Fee-based VAS registered  subscriptions	229.4	203.4	12.8%	225.7	1.7%

Business Review and Outlook

Communication and Social

For Weixin, the active user base and engagement further increased, underscoring the vibrancy of our service and commerce ecosystem. Transaction volume generated from Mini Programs more than doubled year-on-year as we helped businesses thrive by facilitating management of their own channels and user relationships, while also enabling them to achieve higher profit margins than on marketplaces. Brands and merchants can: 1) acquire customers for their Mini Programs offline via QR Codes and Weixin Pay; 2) create and distribute content via their own Official Accounts and Weixin Groups, engaging users and driving repeat visits to their Mini Programs; 3) convert visits into sales with Mini Programs' powerful shopping functionalities; and 4) deepen user connections via Video Accounts and live streaming as additional touchpoints.

For QQ, young users are increasingly active in consuming entertainment content such as anime and comics. To cater to young users' need for immersive social and entertainment experiences, we enriched QQ's Augmented Reality camera effects for video content production and video chat. We also automated the in-app video editing process with smart templates and multimedia tools to drive more appealing user-generated content.

Digital Content

Our fee-based VAS subscriptions grew 13% year-on-year to 229 million. Video subscriptions increased 9% year-on-year to 125 million, benefitting from diversified content across sports, animated series, drama series and movies. Music subscriptions increased 41% year-on-year to 66 million, driven by Tencent Music Entertainment's effective marketing and by increased consumer willingness to subscribe for music services.

Games

We reinforced the IP of our key titles in China and overseas. We adapted Honour of Kings into the drama series, "You Are My Glory", which is the most-watched drama series on Tencent Video by video views per episode year-to-date. PUBG Mobile collaborated with internationally recognised brands such as Godzilla vs. Kong, McLaren and Line Friends to create crossover content. Clash of Clans released a major content upgrade in April 2021 and launched its nineth anniversary event in August 2021, retaining its ranking among the top 10 mobile games by DAU internationally. Valorant achieved 14 million MAU on its first anniversary.

We extended our presence in emerging genres through self-developed games. Alchemy Stars, developed by our Tourdog Studio, became Japan's most downloaded tactical RPG in July 2021, benefitting from its anime art style and unique tile-connecting gameplay. Light and Night, developed by our Aurora Studio, ranked as China's top dating simulation game by DAU in July 2021, enhancing our engagement with female players. Our first Survival, Open World, Crafting (SOC) game, Undawn, developed by our Lightspeed and Quantum Studios, has accumulated over 30 million pre-registrations in China to date.

We have sought to pioneer a healthy game playing environment in the game industry. In August 2021, we further tightened our game time and spending limits for Minors^[3] in China, beyond regulatory requirement. For Honour of Kings and Peacekeeper Elite, we reduced Minors' daily game time limit to 1 hour on non-statutory holidays and to 2 hours on statutory holidays, versus regulatory requirement of 1.5 hours and 3 hours respectively. We also prevented in-game spending by players aged under 12. These measures will be rolled out in all of our games gradually. We are also cracking down on Minors misusing adult accounts, and transactions of adult accounts on third-party platforms. During the second quarter of 2021, players aged under 16 accounted for 2.6% of our China game grossing receipts. Among which, players aged under 12 accounted for 0.3%.

[3] players who are aged under 18 years old

Online Advertising

We expanded our overall advertiser base by enhancing industry solutions and enabling merchants to better manage their private domain operations within our Weixin ecosystem. More advertisers adopted Mini Programs as landing pages for their Moments advertisements, leading to higher sales conversion and revenue growth. Advertisers increasingly recognised Official Accounts' capability in generating sales leads.

During the Tokyo 2020 Olympic Games, we provided integrated marketing solutions across Weixin, QQ, Tencent Video, Tencent Sports, Tencent News and other properties. Leveraging our strengths in social, long-form and short-form video distribution, as well as in content management, we outperformed other online platforms in terms of video views and user sharing.

FinTech

Daily active users and payment frequency grew at healthy year-on-year rates. SMEs are important contributors to, and beneficiaries of our payment ecosystem growth; we will continue to help SMEs benefit from greater mobile payment acceptance, by charging very low or zero payment take rate in certain cases, and by providing complementary resources and services to support their growth.

Cloud and Other Business Services

We utilise our cloud infrastructure, PaaS and SaaS technologies to assist digitalisation for public services and traditional industries. Enhancements to our technology and product development supported broad customer adoption of our platform and software services such as security, AI and data analytic services. The videolisation trend offers more opportunities for our video cloud solutions, and according to IDC, we ranked first in China in terms of video cloud solution revenue. We deepened connections between our communication and productivity SaaS tools (WeCom, Tencent Meeting and Tencent Docs) to support better collaboration within enterprises, as well as between enterprises and their users.

For other detailed disclosure, please refer to our website https://www.tencent.com/en-us/investors.htmlhttp://www.tencent.com/ir, or follow us via Weixin Official Account (Weixin ID: Tencent_IR):

About Tencent

Tencent uses technology to enrich the lives of Internet users.

Our communication and social services, Weixin and QQ, connect users with each other and with digital content and services, both online and offline, making their lives more convenient. Our targeted advertising service helps advertisers reach out to hundreds of millions of consumers in China. Our FinTech and business services support our partners' business growth and assist their digital upgrade.

Tencent invests heavily in talent and technological innovation, actively promoting the development of the Internet industry. Tencent was founded in Shenzhen, China, in 1998. Shares of Tencent (00700.HK) are listed on the Main Board of the Stock Exchange of Hong Kong.

Non-IFRS Financial Measures

To supplement the consolidated results of the Group prepared in accordance with IFRS, certain additional non-IFRS financial measures (in terms of operating profit, operating margin, profit for the period, net margin, profit attributable to equity holders of the Company, basic EPS and diluted EPS), have been presented in this press release. These unaudited non-IFRS financial measures should be considered in addition to, not as a substitute for, measures of the Group's financial performance prepared in accordance with IFRS. In addition, these non-IFRS financial measures may be defined differently from similar terms used by other companies.

The Company's management believes that the non-IFRS financial measures provide investors with useful supplementary information to assess the performance of the Group's core operations by excluding certain non-cash items and certain impact of M&A transactions. In addition, non-IFRS adjustments include relevant non-IFRS adjustments for the Group's major associates based on available published financials of the relevant major associates, or estimates made by the Company's management based on available information, certain expectations, assumptions and premises.

Forward-Looking Statements

This press release contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realised in future. Underlying the forward-looking statements is a lot of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.

 

 

 

CONSOLIDATED INCOME STATEMENT RMB in millions, unless specified
	Unaudited			Unaudited
	2Q2021	2Q2020		2Q2021	1Q2021
Revenues	138,259	114,883		138,259	135,303
VAS	72,013	65,002		72,013	72,443
Online Advertising	22,833	18,552		22,833	21,820
FinTech and Business Services	41,892	29,862		41,892	39,028
Others	1,521	1,467		1,521	2,012
Cost of revenues	(75,514)	(61,673)		(75,514)	(72,668)
Gross profit	62,745	53,210		62,745	62,635
Gross margin	45%	46%		45%	46%
Interest income	1,630	1,749		1,630	1,614
Other gains, net	20,763	8,607		20,763	19,521
Selling and marketing expenses	(10,013)	(7,756)		(10,013)	(8,530)
General and administrative expenses	(22,638)	(16,499)		(22,638)	(18,967)
Operating profit	52,487	39,311		52,487	56,273
Operating margin	38%	34%		38%	42%
Finance costs, net	(1,942)	(2,005)		(1,942)	(1,367)
Share of (loss)/profit of associates and joint    ventures	(3,857)	(295)		(3,857)	1,348
Profit before income tax	46,688	37,011		46,688	56,254
Income tax expense	(3,666)	(4,557)		(3,666)	(7,246)
Profit for the period	43,022	32,454		43,022	49,008
Net margin	31%	28%		31%	36%
Attributable to:
Equity holders of the Company	42,587	33,107		42,587	47,767
Non-controlling interests	435	(653)		435	1,241
Non-IFRS profit attributable to equity    holders of the Company	34,039	30,153		34,039	33,118
Earnings per share for profit    attributable to equity holders of    the Company    (in RMB per share)
- basic	4.472	3.491		4.472	5.020
- diluted	4.387	3.437		4.387	4.917

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME RMB in millions, unless specified
	Unaudited
	2Q2021	2Q2020
Profit for the period	43,022	32,454
Other comprehensive income, net of tax:
Items that may be subsequently reclassified to profit or loss
Share of other comprehensive (loss)/income of associates and joint    ventures	(11)	159
Transfer of share of other comprehensive income to profit or loss upon    disposal and deemed disposal of associates and joint ventures	5	(2)
Currency translation differences	(1,428)	2,358
Other fair value gains/(losses)	92	(687)
Items that will not be subsequently reclassified to profit or loss
Share of other comprehensive income of associates and joint ventures	53	-
Net gains from changes in fair value of financial assets at fair value    through other comprehensive income	46,522	56,797
Currency translation differences	(305)	-
Other fair value gains	-	102
	44,928	58,727
Total comprehensive income for the period	87,950	91,181
Attributable to:
Equity holders of the Company	87,511	89,242
Non-controlling interests	439	1,939

 

OTHER FINANCIAL INFORMATION RMB in millions, unless specified
	Unaudited
	2Q2021	1Q2021	2Q2020
EBITDA (a)	44,567	49,355	40,525
Adjusted EBITDA (a)	50,347	52,927	43,742
Adjusted EBITDA margin (b)	36%	39%	38%
Interest and related expenses	1,912	1,726	1,822
Net (debt)/cash (c)	(20,972)	5,581	7,212
Capital expenditures (d)	6,936	7,734	9,466

 

Note: (a)    EBITDA is calculated as operating profit minus interest income and other gains/losses, net, and adding back depreciation of property, plant and equipment, investment properties as well as right-of-use assets, and amortisation of intangible assets and land use rights. Adjusted EBITDA is calculated as EBITDA plus equity-settled share-based compensation expenses. (b)    Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenues. (c)     Net (debt)/cash represents period end balance and is calculated as cash and cash equivalents, plus term deposits and others, minus borrowings and notes payable. (d)    Capital expenditures consist of additions (excluding business combinations) to property, plant and equipment, construction in progress, investment properties, land use rights and intangible assets (excluding video and music content, game licences and other content).

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
RMB in millions, unless specified
	Unaudited		Audited
	As at June 30, 2021		As at December 31, 2020
ASSETS
Non-current assets
Property, plant and equipment	61,141		59,843
Land use rights	15,953		16,091
Right-of-use assets	13,769		12,929
Construction in progress	5,805		4,939
Investment properties	559		583
Intangible assets	161,904		159,437
Investments in associates	356,687		297,609
Investments in joint ventures	7,743		7,649
Financial assets at fair value through profit or loss	178,915		165,944
Financial assets at fair value through other    comprehensive income	291,500		213,091
Prepayments, deposits and other assets	29,936		24,630
Other financial assets	385		4
Deferred income tax assets	22,971		21,348
Term deposits	39,219		31,681
	1,186,487		1,015,778
Current assets
Inventories	1,020		814
Accounts receivable	53,523		44,981
Prepayments, deposits and other assets	57,481		40,321
Other financial assets	471		1,133
Financial assets at fair value through profit or loss	9,417		6,593
Term deposits	65,330		68,487
Restricted cash	2,322		2,520
Cash and cash equivalents	141,721		152,798
	331,285		317,647
Total assets	1,517,772		1,333,425

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
RMB in millions, unless specified
		Unaudited		Audited
		As at June 30, 2021		As at December 31, 2020
EQUITY
Equity attributable to equity holders of the Company
Share capital		-		-
Share premium		58,013		48,793
Shares held for share award schemes		(4,674)		(4,412)
Other reserves		172,666		121,139
Retained earnings		620,202		538,464
		846,207		703,984
Non-controlling interests		80,764		74,059
Total equity		926,971		778,043
LIABILITIES
Non-current liabilities
Borrowings		114,007		112,145
Notes payable		147,481		122,057
Long-term payables		10,876		9,910
Other financial liabilities		8,102		9,254
Deferred income tax liabilities		15,228		16,061
Lease liabilities		10,962		10,198
Deferred revenue		6,540		6,678
		313,196		286,303
Current liabilities
Accounts payable		99,279		94,030
Other payables and accruals		49,637		54,308
Borrowings		14,686		14,242
Current income tax liabilities		8,599		12,134
Other tax liabilities		1,404		2,149
Other financial liabilities		3,735		5,567
Lease liabilities		4,013		3,822
Deferred revenue		96,252		82,827
		277,605		269,079
Total liabilities		590,801		555,382
Total equity and liabilities		1,517,772		1,333,425

 

 

RECONCILIATIONS OF IFRS TO NON-IFRS RESULTS
	As reported	Adjustments					Non-IFRS
RMB in millions, unless specified		Share-based compensation (a)	Net (gains) from investee companies (b)	Amortisation of intangible assets (c)	Impairment Provision (d)	Income tax effects (e)
	Unaudited three months ended June 30, 2021
Operating profit	52,487	6,202	(20,383)	1,124	3,372	–	42,802
Profit for the period	43,022	7,658	(20,413)	3,140	3,338	(1,605)	35,140
Profit attributable to equity    holders	42,587	7,376	(20,537)	2,767	3,331	(1,485)	34,039
Operating margin	38%						31%
Net margin	31%						25%
	Unaudited three months ended March 31, 2021
Operating profit	56,273	3,704	(18,331)	1,062	50	–	42,758
Profit for the period	49,008	5,036	(22,231)	2,699	178	(187)	34,503
Profit attributable to equity    holders	47,767	4,855	(21,829)	2,352	178	(205)	33,118
Operating margin	42%						32%
Net margin	36%						26%
	Unaudited three months ended June 30, 2020
Operating profit	39,311	3,507	(14,672)	870	8,613	-	37,629
Profit for the period	32,454	4,225	(16,108)	1,886	9,268	(505)	31,220
Profit attributable to equity    holders	33,107	4,019	(15,436)	1,503	7,310	(350)	30,153
Operating margin	34%						33%
Net margin	28%						27%

 

Note: (a)   Including put options granted to employees of investee companies on their shares and shares to be issued under investee companies' share-based incentive plans which can be acquired by the Group, and other incentives (b)   Including net (gains) on deemed disposals/disposals of investee companies, fair value changes arising from investee companies, and other expenses in relation to equity transactions of investee companies (c)   Amortisation of intangible assets resulting from acquisitions (d)   Impairment provisions for associates, joint ventures, goodwill and other intangible assets arising from acquisitions (e)   Income tax effects of non-IFRS adjustments

 

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SOURCE Tencent

FAQ

What were Tencent's revenue figures for 2Q2021 and 1H2021?

Tencent reported revenues of RMB138.3 billion (USD21.4 billion) for 2Q2021 and RMB273.6 billion (USD42.3 billion) for 1H2021.

How did Tencent's profit perform in the second quarter of 2021?

In 2Q2021, Tencent's profit attributable to equity holders was RMB34.0 billion (USD5.3 billion), a 13% year-on-year increase.

What was the operating margin for Tencent in 2Q2021?

The operating margin for Tencent decreased to 31% in 2Q2021, down from 33% in the previous year.

Did Tencent's cash position change by the end of June 2021?

Yes, Tencent's total cash at the end of June 2021 was RMB255.2 billion (USD39.5 billion).

What are Tencent's key growth areas reported in the 2Q2021 results?

Tencent identified FinTech services and online advertising as key growth areas, along with significant contributions from video games.