Online advertising revenue surges but still dwarfs value added services for Tencent’s 4Q 2016 results

Tencent’s 4Q 2016 results saw a 44% jump in revenues to US$6.3b compared to last year, driven mainly by value added services (VAS).

VAS revenues saw a 27% increase to $4.2bn for 4Q 2016 compared to a year ago. Online game revenues rose 16% to $2.6bn, driven mainly by contributions from major smartphone games. Social networks revenue surged 51% to $1.5bn, driven mainly by growth from the digital content services, including digital music business and virtual item sales.

Online advertising jumped 45% to $1.2bn for 4Q 2016 compared to a year ago. Performance-based advertising revenues surged 77% to $749m, mainly due to higher contributions from advertising revenue from Weixin Moments, Tencent’s mobile news app and Weixin official accounts. Brand display advertising revenues increased 11% to $452m, primarily via growth in mobile media platforms such as Tencent News and Tencent Video, which were partially offset by performance inventory replacing some brand inventory.

“During 2016, Tencent achieved significant progress in a number of strategic initiatives to further strengthen our leadership, enrich our ecosystem and enhance our competitiveness. QQ and Weixin reinforced their positions as ubiquitous platforms for users in China to communicate and socialise, as well as to enjoy content and services efficiently,” said Ma Huateng, chairman and chief executive officer, Tencent.

“Looking ahead, we will seek to deliver superior experiences to our users and to create business opportunities for our ecosystem partners through the further implementation of our “Connection” strategy. We will also invest heavily in cutting edge technologies such as security, cloud, big data and AI so as to position us for the next wave of growth,” he added.

Tencent’s “connection” strategy was enhanced in 2016 by connecting their platforms to a wider range of online and offline services. The company differentiated its QQ and Weixin platforms, such as introducing features such as facial beautifying tools and animated stickers to QQ and boosting the merchant and user adoption for Weixin to provide more convenience to users’ daily lives.

QQ and Weixin’s monthly active user numbers for Q4 rose 28% to 889 million compared to a year before.

On the advertising front, Tencent has grown its small and regional marketers by fine-tuning targeting algorithms and improving self-services tools for campaign management and result measurement. Social and performance advertising saw better matching of advertisers and users, and improvement of click-through and sell-through rates. This drove revenue growth without increasing advertisement load rates. For video, Tencent prioritised sponsored advertising to leverage on premium inventory, with the news application improving targeting capability.

“In addition, we are investing in forefront technologies such as artificial intelligence and machine learning to position our “Connection” strategy for the future. We intend to use machine learning to personalise recommendations within our digital content services, sharpen our advertising targeting capability, enrich social interactions via features such as animated face masks, and save costs by optimising our customer service needs,” said the company in a statement.

Tencent results come in the wake of it breaking the $100bn brand barrier, as well as partnering Starbucks, NHL and Mashable.