Tencent’s 2009 Annual Results | US$1.8B and US$765M Net Profit

This comes as no surprise: Tencent’s results were north of US$1.8B for 2009 (up 73.9% yoy) and net profit of US$765M.

[A] Why is that not a surprise?

1. This result adds only the 4th quarter, and Tencent was already healthily above US$1B in the first three.
2. Net margin has been consistent over several quarters

[B] Now what is interesting to notice this time again?

1. Tencent’s revenue is over 3 times Facebook’s. Tencent made US$540M in the 4th quarter, more than Facebook for the whole year. While Tencent’s service is centered on IM, it extends into SNS and games, carrying over the same digital identity and can easily be counted as a “social networking service”.
2. Net profit is an order of magnitude superior
3. Tencent could buy one “MySpace” based on net profit (if acquisition price is same as News Corp.). And no, they won’t do it.
4. Ad revenue were only 7.7% of total. An Internet company making over a billion without ads?! Thanks to virtual goods, in a variety of forms (avatars, games, page decorations, background music, etc.)
5. Tencent’s IM PCU passed 100 million in March 2010. There are 20 million on Skype at peak time. MSN has 330 million active accounts (called “users”) a month. Tencent had 523 million active user accounts in 2009.
6. China’s Internet users are not as rich as their Western counterparts, which makes Tencent’s achievements all the more impressive! (average income of Chinese Internet users is around US$400 per month)

[C] Some more comments

1. Tencent is not China’s Facebook. Based on the above figures, we would rather recommend to someone in the US to become America’s Tencent.
2. Tencent has over US$1B in the bank as retained earnings. If only there was something good to buy! (maybe there is?)
3. Tencent is the third largest Internet company in the world by market cap. At the time of writing we had:
- Google | $179.8B (links and keywords advertiser)
- Amazon | $58.4B (selling low-margin commodities along with digital goods and services)
- Tencent | $36.8B (local Chinese hero)
- Time-Warner | $35.9B (the total group, owns AOL)
- eBay | $35.1B (sadly, without Skype)
- AOL | $2.8B (mentioned as AOL owns ICQ, the initial inspiration for Tencent’s QQ IM)

Tencent’s stock price quadrupled from a year ago. Recession is tough!

[C] Tencent shares are falling! Google is leaving! The ship is going to sink!

Right. Maybe. 3% temporary decrease on a Google China scare or lower expectation is not much impact for a stock that quadrupled in 12 month.
On the sunny side, the Chinese Internet is just entering the “acceleration phase” of the “S curve” in terms of adoption. Still about 25% of Chinese are connected and Internet entertainment is cheaper than 1984′s Victory Gin. How could revenue god down when adding another 100 million or so Internet users in the next 12 to 18 months?

In addition, Tencent provides extreme social value as it is not just “a social network” but real “communication infrastructure”. More people use IM than email in China. And with Tencent, everything is right there! Access search, news, SNS, games right from the IM. Upgrade your online persona, be efficient or entertain yourself. With such power, Tencent does not even have to be the most innovative, just picking the right things and making it suitable for mass-market usage.

In addition, mobile is not played out yet. Three SNS in Japan make hundreds of millions from it, this is yet to come in China (and the US).

Oh, and Tencent is unlikely to leave China this year.

How do they do it?!

We won’t explain here what Tencent does – from IM to SNS, MMO, social games, mobile services, portal – if you wish to know more, our “Inside Tencent” report is waiting for you! | http://www.plus8star.com/reports/ (Previous clients include Microsoft, Harvard Business School, Nokia Growth Partners and more!)

Disclosure: MIH, Tencent’s largest shareholder, is a client of ours on the media side (MIH is a top media company in South Africa). We are not involved with Tencent in any business manner.

Enjoy the read!
@benjaminjoffe – in the Bay Area for a month to recover from #SXSW.

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