Tencent: Structural Change of Enterprise Collaboration
On March 18th, Tencent reported FQ4'19 earnings that beat consensus revenue but slightly missed EPS, given the high sell-side expectation. It is worth noting the fourth quarter's earnings happened before the COVID-19 outbreak. The bright spots in the earnings included a) gaming revenue up 37% YoY, with international games revenue doubled YoY; b) social advertising up 38% YoY on better ad targeting and conversion; 3) payment transaction crossed 1 billion per day, larger than Visa and MasterCard combined.
During the earnings call, the management highlighted the business impact of COVID-19 on its different segments: a) mobile payments, advertising, and cloud services were negatively impacted; and b) gaming, digital entertainment, mini-program, and smart industries saw surging usage. The management also commented that "structural changes, especially enterprise behavior will be longer-lasting”, implying that the new users in collaboration tools Tencent Meeting and Wechat Work are here to stay, consistent with our recent discussion of work collaboration markets.
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Additionally, Tencent’s Capex for FQ4'19 jumped 270% to 16.9 billion RMB, with operating Capex up 93% to RMB 7.1 billion. The remaining 9.8 billion mainly reflected the land use rights acquired for "Tencent Tech Island". With the strong support from the local government, Tencent acquired a large land parcel in the central area of Qianhai, Shenzhen, in November 2019. It's a construction area of 2 million m², for 8.5 billion RMB. At an average price of 4260/m², it is less than 1/5th of the average land parcel price in Shenzhen. In other words, it's a significant blessing from the local government. Below is the newly released planning map of “Tencent Tech Island."
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