Chinese Mobile & Internet Giant, Tencent after integrating its GDT advertising platform for PC and mobile has been successful for performance-based advertising services. Initial trends on mobile performance-based advertising (i.e., mobile QZone, official accounts on WeChat) have been encouraging with substantially higher click-through rate and cost per click.
Currently, app installation is the biggest revenue contributor on mobile advertising, followed by e-commerce customers such as VIPshop and the growing demand from merchants on JD.com’s marketplace. Tencent’s advertising exchange network (TANX) is still smaller than Baidu’s, but the gap is narrowing, driven by the growing usage and traffic for its mobile app store (MyApp). The company thinks the market has underappreciated the advertising value on official accounts, which are aggregating over 1bn daily traffic.
Tencent continues to see a positive trend in user adoption of its media and content services (i.e., news, video, and music services) on mobile devices. This is allowing the company to develop new advertising formats on mobile and to cross-sell its advertising services to its existing advertisers. As the Chinese government becomes more anti-piracy, Tencent believes it is the right time to invest in and accumulate content (i.e., video and music).
Tencent’s margin trends were positive during 2014 thanks to improved business mix shift and growing mobile monetization (mobile game and app distribution). The company now enjoys more flexibility on margins after aggressive investments over the past few years as well as scaling back the asset heavy and loss making businesses including search and e-commerce operations.
Tencent is making progress on its online finance businesses with the establishment of WeBank and growing adoption of Tencent’s mobile payment services. Finance is a huge market but highly regulated. Competition among vertical players will remain intense and irrational – the markets are still at their early stages with well-funded companies. Tencent should benefit as a mobile traffic gatekeeper; it is patient in its investments (e.g., JD.com and 58.com).