Tencent hits a billion dollars + special offer on our published report

+8* China QQPublished March 19, 2009 at 11:53 am 2 Comments

This is it: our prediction of Tencent bringing home over a billion dollars in 2008 (1,046.8 million USD to be precise) has been verified today.

Let’s provide some perspective to this announcement:

1. Tencent the world’s biggest social network?

One might argue that Tencent’s IM + blogs + casual games + portal combination is not an SNS. We think the main reason this is a view held sometimes is that nobody has ever seen anything like it before. What’s more directly social than IM?

Anyway, the point is: Tencent’s revenues in 2008 were:

• x3 Facebook (estimated around 350 million USD)
• Higher than MySpace (about 800 million USD)

And of course higher than everybody else.

If you add that the average income of an Internet user in China is 400 USD, it’s quite an amazing result.

2. And it’s profitable – hugely

• Gross profit was USD729.2 million. Yes, that’s 70% profit margin.
• Net profit was still USD412 million – a 39% margin!
• Remember that Facebook still loses money.
• Remember also that News Corp acquired MySpace for USD580 million in 2005. Tencent could almost buy one PER YEAR simply based on cash flow.

3. What’s the magic?

Getting money from users is the magic. Digital goods, micro-transactions.
The split is:

• Internet Value-added Services: USD719.1 million (68.7%) – mostly avatars, personalization and casual games
• Mobile & Telecom VAS: USD204.7 million (19.6%)
• Online advertising: 120.9 million (11.6%)

In other words, Tencent’s revenues are almost 90% directly from its users (a metric we baptized ARFU for Average Revenue From Users). Facebook records barely 10% and most SNS score a zero (aside from Japan’s mobile SNS Mobile Game Town and Gree).

4. Some usage data

• 891.9 million registered accounts. There are only 300 million Internet users in China, that means about 3 accounts per Internet user (our colleague Bo Yiqun, co-author of our report published about Tencent, has five).
• 376.6 million active accounts. If there are many “dormant” accounts, the number of active accounts is way above MSN and double of Facebook’s 175 million active (?) users.
• 49.7 million PCU on IM. At the time of writing, Skype had about 10 million PCUs, so QQ is five times Skype.

5. Where is the money?

• 31.4 million IVAS paying users. So about 8.3% of active users, very good by social networks and “free-to-play” standards.
• 14.7 million MVAS paying users. About 4% and decreasing but still nice and increasing in overall value. Based on the revenues and results of Japanese and Korean mobile SNS, there is huge potential there once mobile operators get their act together and open up a bit and offer the right data pricing model

It also means that paying users’ spending is:

• IVAS: 22.9 USD / user / year, or 1.9 USD monthly ARFU
• MVAS: 13.9 USD / user / year or 1.2 USD monthly ARFU

PROMOTION on our “Inside QQ” report until the update is out

We are now updating our ever-popular report on Tencent “Inside QQ”, which will be completed by the end of March.

To celebrate Tencent’s amazing results and 10 years anniversary, we offer:

• A 10% rebate on this report for all buyers before the update (hence, 2,700 USD instead of 3,000 USD)
• The update sent to you for free once it is published!

Links

• Our online store – (you can download the document right after payment). This report has been purchased by many large and small companies such as Microsoft, Nokia, DeNA (operator of Japan’s largest mobile social network “Mobile Game Town”) and more!
• A free sample of the report
• Our latest presentation comparing Asian SNS with their Western cousin Facebook.
• Our ever-popular interview by ReadWriteWeb about SNS in Asia