Tencent Expects Video Accounts to Double Ad Revenue, AI Model Upgrade to Come by Year End

BEIJING, August 17 (TiPost)— Tencent Holdings Ltd., is focusing more on monetization of communications and  social networks to weather possible shocks amid ongoing macroeconomic uncertainty.

Credit：Visual China

Both revenue and net income in the quarter ended June 30 that Tencet released this week missed the Wall Street estimates despite double-digit yearly growth. But online advertising delivered an outstanding performance that quarter with a 34% year-over-year increase in revenue. Video accounts, which were touted by Tencent CEO Pony Ma as the fundamental hope of the whole company, contributed more than RMB3 billion of ad revenue that quarter.

At the quarterly financial report, Tencent said its digital advertising outpaced the overall industry’s growth rate, which was attributed to enhancements to machine learning systems powering its advertising platform and robust demand for video accounts advertisements. Advertising spending with us grew at a double-digit year-on-year (YoY) rate from every major advertiser category, except transportation. 

At an earnings conference, Tencent President Martin Lau said Chinese internet behemoth achieved strong growth in user interactions such as likes and comments, and facilitated a thriving creator community as daily active creators and daily video uploads sustained robust YoY growth in the second quarter. Total user time spent increased healthily in the second quarter, benefiting from greater engagement across video accounts, mini programs, and moments. With tools that help creators scale their video accounts presence while also contributing to its ad revenue growth, Tencent deepened user engagement and strengthened content ecosystem, accordingly making progress in expanding monetization opportunities within video accounts.

Answering how to capture opportunities to drive growth amid macro-uncertainties in the near term, Tencet Chief Strategy Officer James Mitchell said his company is facing lots of opportunities both in the long run and more immediate, such as those at video accounts, in which ad load is just a tiny fraction of what its peers are already operating at. Mitchell said Tencent is in a good position to develop the opportunity to make advertising revenue about double as it grows the e-commerce within the video accounts, leveraging existing mini program and Tenpay infrastructure.  

Lau noted live-streaming e-commerce’s potential to build advertising into a significant revenue stream with high incremental margins. While still at early stage of development, Live-streaming e-commerce achieved 150% YoY gross merchandise value (GMV) growth in the second quarter. Tencent Chief Financial Officer John Lo highlighted momentum of video accounts in improving margin. Gross margin for online advertising was 48.9% in the June quarter, up 8.3 percentage points from a year ago, due to increased mix of high-margin video accounts at our revenue and improved cost efficiencies. Gross margin for fintech and business services increased 5.1 points YoY to 38.4%, reflecting cloud services cost optimization and high-margin revenue from video accounts’ live-streaming e-commerce transactions.

Lau talked prospect of Tencent’s artificial intelligence (AI) technology application with upbeat tone. He told analysts that Tecent treated the generative AI as well as the AI model much more broadly than sort of a chatbot that offers a question-and-answer type of experience. Lau said Tencent has started internal testing in different businesses, including games, ads cloud, fintech for them to start testing the model and start working on the integration. Tencent has the AI foundation model that can be ranked among the top ones made in China, and is preparing for upgrade of the model in the latter part of this year, Lau said.

Tencent Cloud recently launched the Model-as-a-Service (MaaS) library of models and solutions, which is expected to bring additional growth source for the cloud business. Lau said the company has a whole set of technology infrastructure, as well as tools, to help business clients choose different types of open-source large models to customize for their own use as well as do the training and the deployment. Meanwhile, Tencent offers different products that have been deploying different types of AIGC tools in order to enhance their efficiency or improve their product competitiveness. Lau took Tencent Meeting for an instance. He said the video conferencing service has already been deploying a model that is developed by one of our investee companies to provide a summary of the meeting notes. 

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