NEWS: Chinas TENCENT reports 1 billion in virtual items

China's TenCent Announces Almost $1B In Virtual Goods Sales For 2008

TenCent reported 2008 annual revenues exceeding $1 billion, an 87% year-over-year increase from 2007 revenues.

$719 million was generated by sales of virtual goods (called "value-added services" by TenCent) to Internet users of the service.

$204 million generated by sales of virtual goods to users in the Mobile category.

Internet virtual goods sales for 2008 represent a 95.5% year-over-year increase from 2007.

Mobile virtual goods sales for the same period had increased 73%.

Only $120 million dollars of TenCent's 2008 revenue is accounted for by online advertising.

TenCent lists its total 2008 gross profits as $729 million at a margin of about 70%.

TenCent's fourth quarter numbers primarily reinforce, and to some degree explain, the overall trends at play in the annual numbers. Total revenue for the quarter was $306 million, a 3.6% increase over revenues for Q3. This suggests that TenCent's revenues were probably stable quarter-over-quarter throughout the year. $216 million of the revenue total for the quarter was generated by Internet virtual goods sales and $56 million generated by Mobile virtual goods sales. Revenues from online advertising account for only $30 million. Gross profits for the quarter $206 million, and operating profit $136 million.

Total registered IM user accounts, active IM user accounts, number of peak IM users, and number of peak games portal users increased slightly from Q3 numbers. Total number of virtual goods subscriptions increased while number of mobile virtual goods subscriptions decreased slightly. However, mobile revenue was still up due to new lines of bundled SMS packages offered by TenCent.

Game-related sales of Internet virtual goods increased substantially from Q3 numbers, by about 18%, due to TenCent launching three new games during this period (Dungeon and Fighter, Cross Fire, and QQ Dancer). The revenue increase for these games was offset somewhat by declining revenues from older games QQ Fantasy and QQ SanGuo. Regardless, it shows that users aren't tiring of virtual goods, just the old virtual goods. Add a new game and new products, and sales continue. Unsurprisingly, TenCent reported a 15.8% decline in online advertising revenue in Q4 2008, attributed to a harsher economic climate.

TenCent's outlook for 2009 calls for stronger sales in Q1 as it contains a major winter break period for Chinese students and several seasonal holidays such as Chinese New Year that are well-suited to sales of virtual goods. Advertising revenue is expected to continue to decline, as traditionally the period surrounding Chinese New Year is weak for advertising purposes anyway.

TenCent is looking to expand its business in 2009 by extending virtual goods sales offline to "include privileges for lifestyle products." TenCent will launch a new social network for students that only permits use of real names as well as three new MMOGs and one new casual game. In the first half of 2010, TenCent expects to launch "up to six" new MMOGs. Advertising revenue is expected to decrease sharply throughout 2009 and not to recover until a general global economic recovery begins.

“In 2008, Tencent delivered strong financial and operating results, leveraging our diversified, platform-based business model which is unique in China’s Internet market. We are also excited to see that, during the year, China has become the largest Internet market in the world by number of users and that Internet has increasingly become an indispensable part of everyday life for people in China,” said Ma Huateng, Chairman and CEO of Tencent.