The good news out of Shenzhen Thursday is that Tencent posted fourth-quarter revenue that beat analyst estimates by about 10 percent.
At the same time, China's dominant social networking operator reported income that missed, which isn't necessarily bad news.
Let's start with QQ, the company's instant messaging service that it describes as ``the most popular social platform for young entertainment-driven users.'' Monthly active users increased from a year earlier, and fell less than 1 percent from the quarter prior. As the backbone of Tencent's gaming business, and hence the value-added services that dominate sales, a bigger number is always better. Or is it?
Within monthly active users, Tencent breaks out peak concurrent users, or the number of people who were logged on at any one time during the quarter. From there we can derive a peak usage ratio, or the peak percentage of all users logged on at any one time. While a gross figure is helpful for showing reach, a ratio can help measure actual engagement.
What can be seen is that Tencent's peak usage ratio growth has flattened. While it expanded 4.6 percentage points a year earlier, it climbed just 1.6 percent in the most recent quarter. This isn't good news for QQ, which relies on driving engagement to boost spending on its games and other value-added services.
The good news is that Tencent is no longer just about QQ. Weixin, aka WeChat, has grown from being a skunkworks project five years ago to overtaking QQ for active mobile users. An instant messenger built for mobile, WeChat is ``a fast-growing, mobile-only social platform that was able to convert users who had not used instant messaging before,'' the company says.
In simple terms, WeChat is the adult of the Tencent family. Not merely a chat app for youngsters that then drives gaming revenue, WeChat is WhatsApp meets Facebook meets Twitter. Meets advertisers. And in the past year, it's been meeting more and more advertisers, helping drive the segment to almost 20 percent of total revenue.
Those advertisers have come at a price. To get the attention of users, Tencent has been spending money on everything from Ninja anime to plastic-surgery apps and online-to-offline services, such as delivery. Most, especially the O2O ones, aren't profitable.
Tencent isn't the only one wearing losses on its O2O businesses. Baidu and Alibaba have also been burning investors' money for the thrill of touting larger user numbers they hope will impress advertisers. For Tencent, at least, the move has been paying off, with advertising outpacing value-added services for the past few years. So while QQ and gaming-related revenue are showing signs of a slowdown, chasing a more mature demographic has helped attract advertisers that can take up the slack.
One of Tencent's money losers is also one of its stickiest and most important products -- Weixin Pay (think PayPal meets Square meets Venmo). Growth has been phenomenal, up seven-fold during the year, because people in China used it to send 32 billion virtual red envelopes, as well as make payments. But because Tencent bears bank handling fees for consumer-to-consumer transfers, the more popular it becomes, the more money it bleeds. And it's bleeding about 300 million yuan ($46 million) a month. With fourth-quarter income missing estimates by less than that, it's a number management's acted on.
As of March 1, Tencent decided to charge 1 yuan per 1,000 yuan withdrawn from its payments system (the first 1,000 yuan is free). It's not a huge amount, and may still not cover the costs, but it's a clear signal that the company isn't going to continue engaging in the win-at-all-costs battle for Chinese eyeballs. Instead, it's started to act rationally instead of emotionally. Because that's what grown-ups do.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
It's not perfect. Total minutes, or some metric of average usage, would be far more helpful. But Tencent stopped publishing that data three years ago.
QQ still has more total users, at 853.1 million, but only 75 percent are mobile, which means 25 percent are still tied to the desktop.
Tencent takes a slightly different approach to others by preferring to invest in businesses, and then connecting the investees to its platforms.
The envelopes are virtual, the money is real.
To contact the author of this story:
Tim Culpan in Taipei at email@example.com
To contact the editor responsible for this story:
Katrina Nicholas at firstname.lastname@example.org