BackTencent gets engaged as China’s online romance peaks
Tencent's first quarter was dominated by its games, while developments in new areas such as video look positive as users increasingly connect via mobile devices
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Taipei: Tencent Holdings Ltd’s standout first quarter was again dominated by its games, while developments in new areas such as video and Mini Programs look positive as users increasingly connect via mobile devices.
I’ve written before about the flip side: Mobile users spend more time on Tencent platforms, but less money on games. That’s why the company behind QQ and WeChat is setting itself up to leverage that massive user base to secure more ad revenue as users go mobile.
Peak concurrent users, or PCU, is not a perfect metric: Short-term incentives or a heavy campaign could easily spike the numbers for the brief period required to hit a high (I’m not suggesting Tencent did this). Yet looking at that gauge over an extended period can help us see a trend—meaning that it’s consistent, if not accurate.
The most obvious point is that as mobile has grown, so has PCU. That’s probably because users can log on and off more quickly when QQ is in their pocket (or hand) than when it’s on a desktop.
Extending the analysis further and dividing PCU by monthly active users, another trend is apparent. PCU/MAU analysis, like the more common daily/monthly active user metric, has many inherent flaws, but once again we can see a bigger picture.
From 21% four years ago, a total of 31% of QQ’s monthly users logged on during last quarter’s peak. That could indicate a level of engagement that advertisers are looking for. How long those users stay, or why, would be far more useful metrics, but Tencent is balancing the need for providing transparency with the desire to not divulge its secret recipe.
Historically, Tencent’s revenue has been driven by games and in-app purchases. While these are linked to the number of people logging on—more customers generally results in more games or in-app purchases—advertisers want to see not just user numbers, but also engagement.
Hence Tencent reclassifying how it accounts for ad revenue. Last quarter I pointed out that the company was probably sacrificing display for performance ads, which accrue revenue based on clicks. Such cannibalization probably will continue, but with attention turning to the platform rather than the revenue model , investors will have clarity on the underlying driver. It also allows Tencent to focus less on the what and more on the where.
As China’s internet boom slows—expect this to be a topic for Alibaba Group Holding Ltd when it speaks with investors Thursday—companies need to come up with strategies that focus on extracting more money per user. The Tencent report indicates it’s setting itself up to do just that. Bloomberg
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