Business· TMT

Tencent expects slower growth in Chinese video ad sales

minutes 2019/05/22 08:45:37
Tecent live streaming, Tencent slower growth, 700 HK

May 22, 2019 (China Knowledge) - Tencent is shifting its focus to industrial services as streaming market matures. The company said that China’s video market is near its peak, therefore, video advertising sales are expected to slow sharply there in 2019.

Video streaming business is a flourishing operation for Tencent but “faces pitfalls despite reaching 89 million paid users as of March 2019,” said Sun Zhonghuai, chief executive of Tencent’s video streaming business.

In 2018, Tencent expanded its user base from 42 million to 82 million people in merely one year. Sun said “However, we only added 7 million new users in the past six months. Sun also cited a recent research finding from eMarketer that growth rate of advertising sales on China’s video platforms will fell to 19% from previously 37% for the year of 2019.

“All these factors have led to the conclusion that China’s streaming market is about to mature,” he said.

Last year, ad revenue from its streaming platforms played a crucial role in elevating Tencent out of financial difficulties. The company’s 2018 Q1 profit dip in 13 as a result of Beijing’s freeze on new game title licenses. The approval process was restarted in December which analyst is expecting to boost their gaming business. Online advertising posted nearly 16% or RMB 13.4 bln of Tencent’s total revenue, in Q1 2019.

Chinese streaming industrial is now faced with fierce competition, with many companies are scrambling to attract users by investing heavily in acquiring high-quality content. Online ad sales are also expected to slow down in Q1 2019, mainly due to China’s cooling property market and weaker auto sales which are two major sources of online ads provider.

It remains a question on whether Tencent’s streaming platform is profitable since Tencent has not made any disclosure. However, Baidu-backed iQiyi, reported a net loss of RMB 1.8 bln over the January-March quarter.

This explains why Tencent is diversifying its business heavily to industrial services. In September, Tencent announced its first restructuring in six years, saying that its “mission is to become a digital assistant for all industries.”

Tencent demonstrated the company’s ability to serve Chinese industries in Kunming on Tuesday during its inaugural Global Digital Ecosystem Summit. Tencent said it has gained a toehold in many sectors from retail to health care and transportation. This is thanks to their instant messaging app Wechat which has roughly 1.1 billion users which thereby enable corporate clients to connect with Chinese consumers.

Tencent is also proud to say that more than 100 retailers have embraced Tencent’s smart retail approach in 2018. Japanese fashion company, Uniqlo saw membership signups accelerated 50% than before, crediting to WeChat’s outreach as well as value-added services such as virtual-reality-enabled online fitting.

However, Tencent executives also pointed out that many of their new initiatives remained loss-making during a recent earnings call.

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