Is Tencent Q2 earning a good sign to the price?

$TENCENT(00700)$ released the second quarter report at the date of August 17. One day earlier, the media reported that "Tencent intends to sell off its holdings on $Meituan(03690)$, bringing chaos in trading.

It is definitely not Tencent's leak, silence would be its most reasonable choice. But the media don't care, they need gossips, some of which created some "investment opportunities" to banks.

After all, the pricing power of Hong Kong stock market is still in investors with US dollars. Tencent has tried hard to buy back in the past quarter, but still can't resist the selling pressure of "indefinite reduction" of major shareholder.$Naspers Ltd.(NPSNY)$ From the day it decided to sell in the secondary market, Tencent's nightmare started.

Therefore, the quality of Q2 financial report is hardly an important factor affecting Tencent's stock price trend.

Of course, Q2 performance will not be wonderful. It is the first single quarter in which Tencent has declined since its IPO. However, the market also expected this. Apart from the fact that revenue is an ironclad decline, it is difficult for us to judge whether Q2's performance brings "good news" or "bad news".

  • Revenue was 134 billion yuan, down 3.2% year-on-year, slightly worse than the market expected consensus of 135.6 billion yuan, which was negative;
  • Gross profit was 57.9 billion yuan, down 7.7% year-on-year, slightly better than the market consensus of 55.9 billion yuan, mixed;
  • The operating profit was 30.1 billion yuan, down 43% year-on-year, while the adjusted operating profit was 36.7 billion yuan, slightly better than the market consensus of 33.8 billion yuan, mixed;
  • EBITDA was 38.6 billion yuan, down 14% year-on-year, while the adjusted EBITDA was 44.7 billion yuan, slightly better than the market consensus of 42.1 billion yuan, mixed;
  • The net profit was 18.6 billion yuan, down 56% year-on-year, while the adjusted net profit was 28.1 billion yuan, slightly better than the market consensus of 24.4 billion yuan.

In principle, the decline in performance is bad news, and the market has already expected it, even reflected in the price.However, the overall market consensus is more pessimistic than the actuals, which leads to Tencent's profit index being a little more surprising than expected.

It should be noted that market expectations are generally a consensus data. For example, Bloomberg uses the average of expected values given by all analysts. Among them, because some analysts are not updated in time (Could be in May), they still keep the previous high expected value, which is equivalent to the fact that the market expected consensus is still on the high side. In this case,Tencent's profit index can still exceed expectations, which is actually better than the pessimistic expectations of analysts who "closely follow Tencent".

Thus, the "adjustment" is necessary and has impact of some non-main items outside IFRS accounting standards, mainly non-cash items such as employee share compensation, investment company income (and fair value changes), amortization, impairment, etc. This is partly due to the great fluctuation every quarter, so if adjusted, the profit index will be more in line with Tencent's actual operation.

On whole, Tencent Q2's financial report is "generally declining", but "slightly exceeding expectations". This is not good news for stock prices. A thousand investors may have a thousand ways to read it.

In terms of performance alone, the three business segments of value-added services (including games and videos), advertising and financial technology (including payment and cloud) are very alarming but remarkable.

Revenue from games declined slightly, among which "王者荣耀" and "和平精英" both declined, while "英雄联盟手游" and "金铲铲之战" were on the rise and contributed to the growth. It is worth mentioning that, Many people think that "the pause of game version" is bad for Tencent, but in fact it is also good news.This is mainly because it is a huge negative for companies that need to replace game IP frequently, while Tencent's several mobile games have already experienced the test, but no good new games are a reverse stimulus to them.

Overseas games declined, $Sea Ltd(SE)$ 's Q2 report also mentioned the same thing. The main influencing factor was the recovery of offline activities in some regions. The exchange rate has little impact on Tencent's overseas games.

Judging from Tencent's deferred revenue, Q1 has experienced a year-on-year decline (-4%),Q2 fell by-8%Therefore, the next quarter is still not optimistic.

In terms of social networks, the live broadcast service of video numbers has increasingly become a bright spot, and many overseas live broadcasts have exploded the whole network. Although there is still a certain distance from "efficient realization", as long as the whole WeChat ecosystem continues to cooperate, the content realization ability will continue to increase in the future. Although there is no bright spot in video, Tencent Music has the help of Jay Chou.

Revenue from online advertising fell by 18% year-on-year, which was hit hard in April and May, and social advertising fell by 17%, mainly due to weak demand.The advertising focus in the next few quarters is still the WeChat ecosystem.The decrease of advertising revenue with higher profit margin will directly affect Tencent's overall profit margin, which is why the adjusted operating profit decreased by 14% when Q2's revenue decreased by 3%.

Similarly, the income from financial technology was also affected by offline payment, which slowed down year on year and recovered after June. Tencent did not mention the growth rate of cloud business this time, but only introduced the loss reduction project. According to the 1% year-on-year growth rate of the whole sector, the cloud business performed poorly this quarter.

Of course,In the case of lower revenue, Tencent mainly focuses on reducing costs and expensesT. his is obviously a very positive signal.

Gross profit fell 7.7% year-on-year, but still exceeded market consensus, mainly because the market expected the advertising business to decline even more. What is more unexpected is that the gross profit of financial technology services still increased by 4.9% year-on-year.

On the expense side, marketing spending fell 21%, apparently more than its own advertising business. Tencent's efforts in "throttling" are obvious to all.

The increase in administrative expenses has also dropped from 20-40% in previous quarters to 16%.On the one hand, there is still the impact of layoffs, on the other hand, the compensation of employees in overseas companies (including stock compensation). It is expected that the decline will be more obvious in the next few quarters.

On the whole, Tencent's profit level is declining, but it is well controlled, so as not to stall to another market accident. At present, due to the decline in profits, the overall valuation level is also returning.

Although Tencent can buy back again after the earnings, there are still two mountains, one is the reduction of major shareholders, and the other is the influence of stocks in China as a whole. Of course, once one of them shows a slowing trend, the money will be back soon.

As for investors who want to hedging or buy a dip, it is a more effective choice to hedge with options.

voteHow do you think on Tencent Q2 earning?(Single choice)
31 people voted· Ended
# Tencent: What's your target price?

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  • DanZillaXD
    ·2022-08-17
    Still not really a good investment atm
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  • highhand
    ·2022-08-17
    Must do re branding... Change name from Tencent to Onecent to become Number 1!
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    • highhandReplying toHelenJanet
      😆
      2022-08-18
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    • HelenJanet
      Very good idea to change the name, just like the celebrities like to change their name in hope to increase their luck, improve their career prospects and become more successful.
      2022-08-17
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  • JoelLee
    ·2022-08-17
    Hmm k da k was paww
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  • vcvcbc
    ·2022-08-21
    🏠
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  • Mun88
    ·2022-08-19
    Ok
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  • Dickson8614
    ·2022-08-18
    Nice
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  • cykcykcyk
    ·2022-08-18
    surely
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  • chooi
    ·2022-08-18
    [shy]
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  • 華笑今生
    ·2022-08-18
    Trending
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  • Aninpooh
    ·2022-08-18
    Thanks
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  • whitesnake
    ·2022-08-18
    👍🏻
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  • Linkbridge
    ·2022-08-18
    o
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  • RKT
    ·2022-08-18
    K
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  • JarvisKhong
    ·2022-08-17
    喔喔
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  • man wang
    ·2022-08-17
    👍
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  • Untame
    ·2022-08-17
    Nice
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  • charija
    ·2022-08-17
    wow
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  • Jenn79
    ·2022-08-17
    ok
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  • TCL
    ·2022-08-17
    hi
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  • Sim415
    ·2022-08-17
    Wooo
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