An Overall Analysis of Tecent's Business Model
Jichen Huang
1,† a
, Lelin Li
2,† b
, Yuxing Lu
3,† c
and Luyao Zhang
4,† d
Macau University of Science and Technology, Macau, China
Xinhua College of Sun Yat-sen University, Dongguan, China
University of Dalian, Dalian, China
Xi’an University of Finance and Economics, Xi’an, China
These authors contributed equally
Keywords: Internet Company, PEST, 3C, Product Analysis, Profit Model, Ratio Analysis.
Abstract: In the past thirty years, our economy has developed at an unprecedented speed. At the same time, China’s
consumption concept and consumption structure has also undergone profound changes. With the
development of electronic technology and application of electronic products, a large number of people have
been exposed to Internet. Taking Tencent as an example, this paper summarizes Tencent's current macro
environment, business strategy, product system and profitability status from the perspectives of PEST, 3C,
product features, profit model and financial ratio through the literature research method and case analysis
method, and summarizes its financial and operating conditions according to the data of Tencent's financial
statements in recent years, and looks forward to the future development of Tencent. At the same time, using
this paper as a reference, it provides a certain degree of practical experience and reference significance for
the selection and innovation of other Internet companies.
Tencent Holdings Limited is a Chinese multinational
investment holding conglomerate, founded in
November 1998 and is headquartered in Shenzhen,
China. It is one of the largest internet integrated
service providers and one of the internet companies
with the most service users in China. Tencent
specializes in various internet-related services and
products, entertainment, and technology both in
China and globally. Tencent also invests in AI by
jointly establishing an innovation lab with MediaTek.
Its many services include social network, music, e-
commerce, smartphones, mobile games, and it started
to buy large video game companies, making it also
become the largest and most valuable gaming and
social media company in the world. Tencent went
public on the Stock Exchange of Hong Kong in 2004.
Tencent became Asia’s largest company and one
of the world’s top five firms. It growing so fast, with
a market cap of more than $720 billion, Tencent
briefly overtook one of the world’s largest listed
The research objective is the operating condition
of Tencent’s product industry and give Tencent some
suggestions on future development.
This paper selects the PEST analysis model to
summarize the macro and external environment in
which Tencent is surrounded.
2.1 Political Factors
The Chinese government has issued series of policies
to improve livelihood of people and promote
environmental protection through the Internet in
recent years. In November 2020, the State Council
issued a notice on the ‘Plan for Solving the
Difficulties of the Elderly in Using IT’, proposing to
Huang, J., Li, L., Lu, Y. and Zhang, L.
An Overall Analysis of Tecent’s Business Model.
DOI: 10.5220/0011189400003440
In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 521-531
ISBN: 978-989-758-593-7
2022 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
effectively solve the difficulties encountered by the
elderly in terms of using intelligent technology, so
that the majority of the elderly can better adapt to and
integrate into this smart society. Internet information
enterprises took the lead in carrying out age-
appropriate transformation to help ‘silver hair touch
the net’. On July 15, 2021, 13 political departments
jointly issued ‘Opinions on Supporting the
Development of New Models and Activating the
Consumer Market to Drive Employment Expansion’,
innovating the supply mode of production factors,
activating new consumer markets and developing
new employment forms.
However, for domestic Internet giants, there is a
trend of abolishing preferential tax rates in national
policies. In Chinese Taxation, enterprises that have
obtained the qualification of national key software
enterprises enjoy a preferential corporate income tax
rate of 10%. When large Internet companies have
less operating pressure that is smaller than that of
enterprises in other industries, the corporate income
tax rate of them has returned from tax incentives to
normal tax rate. According to Morgan Stanley's stock
analyst Gary Yu, if Tencent's corporate income tax
rate rises from 10% to 15%, Tencent's share price
will be negatively impacted by 6%.
2.2 Economic Factors
In China, the GDP of the tertiary industry has grown
rapidly in recent years. Data collected from Statistics
of China-Announcement by the National Bureau of
Statistics on the final verification of GDP in 2020 is
shown in Figure 1, tertiary industry accounted for
54% of GDP, the total current price was 551974
billion RMB, and the constant price growth rate was
1.9% in 2020. The increasing trend in tertiary
industry was partly contributed to the spread of
Internet and digitalization. Chinese economy has
shifted from a stage of high-speed growth to a stage
of high-quality development. According to the
analysis, for every 10% increase in digitalization,
GDP per capita increases by 0.5% to 0.62%.
Figure 1: Proportion of GDP in three forms of industry in
China in 2020.
The economic situation prompts Internet
companies to differentiate their marketing of
products, bringing greater opportunities and
challenges to Tencent. The analysis covers the most
typical and successful strategies, which distinguished
Tencent Games from its competitors' product (Shen,
However, the advertising economy is sluggish.
According to the three quarterly reports of various
Internet companies, online giants such as Tencent
and Baidu have been deeply affected by the big
environment and their growth has been sluggish. In
the current period, Tencent's Non-IFRS net profit of
$31,751 million decreased 2% year-over-year for the
first time in 10 years (He, 2021).
2.3 Socialcultural Factors
Tencent occupies most of the domestic game market
in China. Recently, the ‘Economic Information
Daily’ sponsored by the head of the Xinhua News
Agency published an article which directly pointed to
the harm of online games to adolescents, such as
more than half of children's myopia, addicted to
games, delayed schooling, personality alienation,
physical weakness, etc. Under series of control
measures, Tencent Games finally limited the daily
game time to 1.5 hours, shortening the game time
again, which means that its revenue from games will
be affected to some extent.
The development of the fan economy drives the
development of Internet companies, especially those
that focus on the film and television domain. In the
era of pan-entertainment, Chinese consumers have
ultimate experiences related to entertainment, and IP
dramas are the core content of fan consumption.
Since 2012, Tencent has proposed ‘pan-
entertainment’, linking online and offline, and
transformed IP such as games, animation and
literature to create industrial chains.
2.4 Technological Factors
Big data technology has become the main application
mean of Internet enterprise user analysis. In the
modern society, data presents the characteristics of
value and diversification. The user information
database established through cloud computing is a
key project of Internet companies. Based on big data
and cloud technology, Tencent Video conducts data
processing and comprehensive analysis of users' age,
gender, region, Internet access scenarios, time,
content preferences and so on, ultimately providing
users with diversified services.
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
Tencent makes good use of the social software
‘strong link’ technology. WeChat, QQ and other
social platforms have a "strong link" relationship,
which is mainly based on the trust relationship. Users
can watch their favorite content in Tencent Video,
share it with one click to WeChat friends circle, QQ
space and other platforms, achieving the effect of
‘secondary dissemination’ (Wei, 2019).
The Mini Program is a product developed by the
WeChat of Tencent, which is on average more than
20% faster than H5. As the Mini Program technology
develops, functions of Mini Programs have been
more and more completed. The biggest advantage of
the Mini Program is to implement the function of
linking to third parties, and finally achieve seamless
docking with users with high quality, high speed and
great convenience.
This paper selects the three c analysis business model
to summarize the operational strategy of Tencent.
3.1 The Customers
Tencent's clients are mostly on the Internet,
regardless of their age or educational background, as
long as they are netizens. Initially, Tencent focused
on instant messaging and social networking
platforms, as China's economy was developing at an
unprecedented speed and customers were looking for
a new way to communicate. Then QQ came along
and became the most famous platform since 2000.
The number of QQ's customers increased
dramatically during this period, which was the base
of Tencent's customers (Liu, 2015). Tencent caught
up with the rise and popularity of smart phones,
which rapidly boosted the number of users.
Furthermore, at this time, national policy is very
favorable to the development of Internet enterprises,
the Internet economy is accelerating its penetration
into the traditional economy, the development is
gradually undergoing in-depth transformation, and
the life of Internet users is being promoted towards a
comprehensive network (Liu, 2015). After
accumulating a huge number of users on QQ,
Tencent launched WeChat in 2011. A new
application that helps users to perform a variety of
tasks that touch every part of their lives such as
WeChat Pay and We Chat Health. WeChat's user
base had grown to 1.225 billion by 2020.
With the growth of electronic technology and the
application of electronic products, an increasing
number of people now have access to online games,
and Tencent's refinement of QQ games has attracted
users of all ages to the platform. Chess, cards, and
mahjong are popular among not only young but even
middle-aged and elderly people. Users between the
ages of 18 and 35 are drawn to competitive mobile
games like "King of Glory" and "PUBG." The
majority of well-educated young people shown in
Figure 2 are willing to try new things and have the
financial ability to support their hobbies.
a. Reference: The Ministry of Education
Figure 2: Higher education population in China.
However, Tencent unconcerned about the
prospective elderly clients. Tencent's customer base
is currently dominated by teenagers and young
people, as the majority of the middle-aged and
elderly are unable to use many of the company's
technology goods. Tencent should improve this
element and create goods that are useful to middle-
aged and senior people.
3.2 The Competitors
NetEase, as one of the competitors is valued at
us$700 billion. Both Tencent and NetEase have
significant gaming operation and research and
development skills. NetEase's competitive advantage
stems from its developed business model and
extensive agency expertise. NetEase is very good at
extending the life cycle of their games, and its classic
works are "A Chinese Odyssey to the West" and
"Dream Westward Journey" created since 2005.
However, in the era of mobile games, Tencent
occupies the market share earlier. With the help of
social platforms and other businesses, such as QQ,
WeChat and QQ browser, Tencent games are more
easily known by the public. Moreover, the user
stickiness of social platforms makes it easier to
spread games with multiple participants. Tencent's
position in the business is hard to overcome in a short
term, and it possesses a significant number of
An Overall Analysis of Tecent’s Business Model
valuable resources. Tencent was one of the first
companies in the game industry to create a large-
scale layout, and thanks to the high stickiness of QQ,
it was able to precisely divide the market and target
the audience, putting its operational revenue in first
position (Feng, 2019).
Tencent and NetEase's market share is expected
to grow by ten percent to twenty percent.
Considering Tencent's great competitiveness, trying
to catch up to Tencent will be extremely tough for
NetEase. However, since NetEase and Tencent have
different relative advantages in different fields,
NetEase can catch up with Tencent by developing
online and mobile games. And since Tencent lacks
the competence and experience to develop into new
markets outside of China, it is not appropriate to
implement an overseas internationalization strategy
blindly (Li, 2014).
3.3 The Corporation
Tencent's roots are in the social media industry, but
the game industry accounts for half of its revenue,
and advertising finance is the company's future
growth direction. Up to now, Tencent game
development has established a solid competitive
advantage in the business. First of all, Tencent has a
large channel distribution capacity. Through its QQ,
WeChat, and QQ browser apps, as well as its tight
cooperation with Apple Inc., Tencent has become
China's leading mobile game distribution provider.
Tencent, on the other hand, is distinct from all other
game companies. Tencent has introduced a huge
number of initial consumers to its newly launched
game products by building up exposure portals on
social networks. Tencent's competitors have opted to
collaborate with Tencent to jointly create and release
classic terminal game IP in the era of terminal games.
Second, Tencent has a rich product lines which
reduce the risk of relying too much on one single
game. And stable revenue gain from its game
business. Client games, mobile games, web games,
and other fields are all covered by Tencent games.
The game category is also quite diverse, with role
playing games, competitive games, casual games,
and chess and card games. In addition to its own
research and development and agency games,
acquisitions are also an important way for Tencent to
expand its game territory. It acquired developer Riot
Games in 2011 and made $1.6 billion in 2015 with
“League of Legends”, making it the highest-grossing
game in the world that year. And "clash Royale" has
long been one of the top three smart phone games,
with Tencent owning 84.3% of Finnish developer
Spuercell for $8.6 billion.
Third, the research and development capabilities
has improved. "Honor of Kings", which was released
in 2015, has dominated the global mobile gaming
rankings for three years in a row. It can only keep its
leadership by constantly expanding its own research
and development capabilities.
Tencent has a large number of products, covering
almost all areas of the Internet. The main high-
quality products are the profit sources of Tencent's
profit model, and Tencent mainly relies on these
products to improve quality and efficiency and create
value for enterprises.
4.1 Communication and Social
Starting from connecting people, Tencent provides a
feature-rich, easy-to-use instant messaging and social
networking platform that personalizes
communication, sharing and exchange and enriches
people's lives. Tencent's QQ, Qzone and WeChat are
among the top five social networks in the world.
4.1.1 WeChat
Since its launch in 2011, WeChat, the
communication and social platform with the largest
user base in China, not only supports sending voice,
video, pictures and text, but also combines real-time
communication with social information and lifestyle
services. WeChat applets provide functions such as
public platforms and message pushing to bring
merchants and users closer together; WeChat Pay
allows users to complete a fast, secure and efficient
payment process. As of March 2020, WeChat has
more than 1.2 billion monthly active accounts,
covering more than 90% of smartphones in China.
4.1.2 QQ
QQ is an Internet-based instant messaging software
developed by Tencent, which supports online
chatting, video calling, file sharing, network hard
disk, QQ mailbox and other functions, and continues
to introduce innovative features that meet the needs
of young users. Among them, QQ Mailbox has over
800 million registered users and 500 to 600 million
active users, making it the main free mailbox used in
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
China. As of March 2020, QQ had 768 million
monthly active users (including PC and mobile).
4.1.3 Qzone
Qzone is a social platform that supports users to
share and interact with friends and family, meeting
their needs for display, communication and
entertainment, and sharing their lives anytime,
anywhere, with the third highest number of monthly
active users in the world.
4.2 Entertainment
At present, Tencent's entertainment products mainly
include games, videos, live streaming, news, music,
literature and other contents.
4.2.1 Tencent Game
Founded in 2003, Tencent Game is a leading game
developer and operator in the world. Tencent Game
released its first game QQ Tang in 2004, and in
2015, TiMi Studio released the multiplayer online
battle game Glory of Kings, which by 2017 was both
the world's most popular game and the most
downloaded app in the world. In 2011, Tencent
Games started hosting online multiplayer games
such as Call of Duty Online, consisting of previous
Call of Duty titles with added content, as well as the
game League of Legends, which it now fully owns
("Arena of Valor Revenue Clears $140 Million
Outside China", 2019). At the same time, Tencent
Games also actively promotes the development of
the eSports industry and creates a high-quality
digital life experience for users.
4.2.2 Tencent Video
At present, Tencent Video aggregates a large
amount of content resources such as popular movies
and TV shows, sports events and news and
information, and has developed into China's largest
online video media platform in terms of average
daily active users through various forms such as PC
terminal, mobile terminal and living room products.
4.2.3 Wesee
Wesee is Tencent's short video creation and sharing
platform, and is the main competitor of TikTok.
Users can log in through their QQ and WeChat
accounts and share the videos they shoot to WeChat
friends, friends circle, Qzone and other platforms
4.2.4 Tencent Music
Tencent Music Entertainment Group is a leader in
digital music services in China, with China's widely
popular music platforms: QQ Music, KuGou Music
and Nationwide K Song, with a total monthly active
user base of over 800 million. As of December 31,
2019, Tencent Music's music library exceeded 40
million tracks.
4.3 Financial Technology Services
Tencent Financial Technology is committed to
connecting people and finance based on two
platforms, WeChat Pay and QQ Wallet, and works
with partners to provide global users with financial
services such as mobile payment, wealth
management, credit services, securities investment,
4.3.1 WeChat Pay
Based on the binding of bank cards, users can
complete a secure and efficient payment process
through their cell phones. In China, WeChat Pay
has achieved full online and offline coverage,
providing users with a full range of services such as
retail, food and beverage, and travel. Overseas,
WeChat Pay has covered more than 60 overseas
markets and supports transactions in 17 currencies.
4.3.2 QQ Wallet
It is a mobile payment product based on Tencent
QQ, integrating different convenient payment
methods such as bank cards, QR codes and NFC,
etc. QQ Wallet's main customers are young people
under 21 years old, and it provides mobile QQ users
with various experiences such as life services,
financial management, public welfare and travel by
combining QQ products and merchants.
4.3.3 Tencent Wealth Management
As the official financial platform of Tencent, since
its launch in January 2014, Wealth Management has
cooperated with banks, insurance, funds and other
financial institutions to bring one-stop investment
and financial management experience to hundreds of
millions of users. At present, it has launched money
funds, insurance-type wealth management, bond
funds, hybrid funds and other financial products as
well as a variety of functions such as salary fixed
investment, index fixed investment, credit card
repayment financing and mortgage financing. Meet
An Overall Analysis of Tecent’s Business Model
the diversified wealth management and asset
allocation needs of users. By the end of 2019, the
total customer assets of Wealth Management
reached RMB 900 billion.
4.4 Tool
Tencent provides users with a variety of tools to help
them quickly solve specific needs such as network
security management, fast browsing, and location
4.4.1 QQ Browser
With X5 kernel, it supports different end-users to
access the Internet quickly. It is fast, traffic-saving
and industry-leading in terms of stability. QQ
Browser also provides a number of services such as
information, short videos, novels and cartoons. It
intelligently understands users' preferences and
provides them with better search services and
content browsing experience.
4.4.2 Tencent Maps
It provides users with digital maps, intelligent route
planning, navigation and other travel-related
services. At present, Tencent Maps provides address
search and bus route search services in various cities
across China and has accessed more than 2,000 sets
of indoor maps, providing accurate navigation in
major airports, railway stations and shopping malls,
making users' travel life more efficient.
5.1 One-Stop Online Lifestyle Services
Tencent takes "providing users with one-stop online
lifestyle services" as its strategic goal, grasps
consumers' preferences and needs, and integrates and
develops similar products, making them show a
diversified development trend. In order to effectively
meet users' demand for information and knowledge,
Tencent has launched products such as QQ Browser
and QQ Mail; in order to enable users to share
resources with each other, it has launched QQ Space
and the Circle of Friends; in order to realize users'
demands for entertainment, Tencent has launched
QQ Show/pet/Game/music/Radio/TV and other
series of products. At the same time, it has invariably
increased customers' loyalty to Tencent's products
and made them recognize the brand more.
5.2 High Product Viscosity
Social platforms such as WeChat and QQ have
brought great success to Tencent. Through the
cultivation of users for nearly a decade, customers'
reliance on Tencent's products has been formed, and
Tencent has thus occupied the dominant position in
China's instant messaging market. At the same time,
by meeting users' new needs and guiding them to
new consumption behaviors, the combination of free
products and value-added products has made it
difficult for customers to switch to other instant
messengers, thus retaining users and ultimately
achieving a win-win situation among multiple
Relying on its huge user base and taking
advantage of people's strong demand for
communication in the Internet environment, Tencent
has developed its profit point from a single QQ to
multiple applications; its profit source has also
changed from smaller mobile QQ users in the past to
paid users of other applications; some users have
changed from students to workers, making
customers' ability and willingness to pay also greatly
enhanced, creating Tencent's current monopoly
5.3 Adapt to Development and Rapid
Tencent's financial results in 2020 showed that the
growth of Tencent's Internet community value-added
services revenue slowed, but in mobile and telecom
value-added services, revenue achieved solid
growth, and the popularity of social software and
mobile games continued to grow. Tencent adapted to
this change in a timely manner by vigorously
developing its mobile Internet business, increasing
its wireless Internet business products and enhancing
the functionality and social aspects of its products.
In addition, Tencent advocates digging into
customer needs and making timely adjustments and
modifications based on users' feedback on the
platform, constantly iterating and updating products
to improve user experience. During the development
of its own products, Tencent is the first to
investigate and study new products and technologies
in the industry. Based on the ideas and behaviors of
innovators, Tencent absorbs the innovative
technologies used by other brands by introducing
and purchasing them, and makes appropriate
adjustments and improvements in combination with
its own basic situation and profit model development
needs, so as to formulate more scientific competitive
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
solutions to enter the market and effectively improve
the core competitiveness of the company.
The attention to the profit model stems from the rapid
development of the Internet. Tencent, as a famous
Internet enterprise giant in China, and its
achievements are full of praise for all the Internet
companies. Tencent's initial free social networking
software totaled 482.064 billion RMB in 2020.
Tencent made such huge profits, inseparable from the
following two profit models: Tencent's QQ and
WeChat profit model and Tencent's game industry
profit model.
6.1 Tencent QQ and WeChat Profit
Model Classification and Analysis
In the past 23 years, Tencent has formed effective
profit models in QQ and WeChat social media, has
experienced the test of practice, and has been widely
adopted. Therefore, according to different business
structures, the relatively mature profit model of QQ
and WeChat can be divided into the following
Table 1: The percentage of main sources of profit.
$2642.12billion 54.81%
$1280.86 billion 26.57%
$82.271 billion 17.07%
Figure 1. Main business composition of Tencent.
6.1.1 Member Profit Model (Value-added
The membership profit model is mainly to establish
an organizational form of a member club to make
profits by providing products and services.
According to data from table 1 and figure 3,
Tencent's value-added services accounted for 54.81%
in 2020, as one of the main sources of revenue. In
addition, Tencent QQ mainly focuses on QQ
members, QQ exhibitions and other representative
Internet value-added businesses. At first, Tencent
first offered free instant chat tools, so it mastered a
large number of users. But if this free strategy, it will
not bring any effective benefits to Tencent. So far,
Tencent has been focused on how to convert market
share into profits. Tencent has also added value-
added services for charging services, and continues
to provide customers with free instant chat tools. For
example, instant chat software with a free strategy
occupies an important market share, coupled with
QQ membership and QQ display clothing to make a
profit. The value of the content pushed by the
WeChat public platform is to push the original
content with its own platform characteristics, so as to
attract potential users with the content, retain fans,
enhance the interaction with fans and cultivate fans'
dependence on the platform. At present, WeChat has
entered every corner of people's life. WeChat public
platform was officially launched on August 23, 2012,
which is a new functional module added by Tencent
on the basis of WeChat. Tencent has a clear
positioning for the public platform (Han 2022).
6.1.2 Mobile Value-added Profit Model
(Enterprise Mobile Value-added
Mobile value-added profit is mainly through
cooperation with operators to provide QQ voice calls,
SMS and so on to obtain profits. In 2020, Tencent's
Fichte and enterprise services accounted for 26.57%
of the company, and its operating revenue reached
128.086 billion yuan, which specifically refers to the
combination of smart-phone and computer social
software to form mobile social software and increase
the value-added income of SP business. For example,
with the popularity of smart phones, QQ also began
to bind to mobile phones and become a mobile QQ,
transforming from a PC terminal to a mobile
terminal, and also supporting PC to mobile phones.
Thus, the interaction between the two increased, and
thus the amount of information transmitted increased
An Overall Analysis of Tecent’s Business Model
substantially. Earnings by sharing revenue with
telecommute operators.
6.1.3 Advertising Profit Model
There is no doubt that advertising is one of the
earliest profit models. Online advertising accounted
for 17.07% in 2020 in Tencent, so the investment of
online advertising should be strengthened in the
future. The establishment of official chat account
mainly depends on the number of fans, the quality of
the article content of the account, and the degree of
activity of the public account. First, content of
articles in public accounts supports the original
design, which improves the popularity of public
accounts and improves stream, and the greater the
click power of revenue will be. Public accounts have
the original foundation, which also have the certain
popularity, no longer need to rely on traffic owners,
commercial advertising can become the main source
of personal official account of WeChat profits.
Advertising profit model also includes advertising
platform fees, for instance, for writers who write
advertising articles in WeChat, revenue is expected
to reach hundreds of thousands or tens of thousands
of dollars if fans and views continue to rise. It is also
mainly through stream.
6.2 Tencent Game Industry Profit
Model Analysis
Tencent has a lot of profit returns in addition to the
news agency delivery app, the game industry has
brought huge profits. In the mobile game market in
2020, Tencent generated a huge marketing revenue
with 20.967.6 billion RMB, which was increased by
4.84%, compared to 2019. Therefore, Tencent, as a
leader in the game industry, its profit model makes
huge contribution.
6.2.1 The Components of Tencent Game
Profit Model
Firstly, relying on social media article content, such
as personal WeChat official account, WeChat and
other push content, Tencent obtains support of stream
for its profitability from games.
Secondly, from the perspective of the profit
object. The object of profit is the object of the
income of the enterprise, that is, the customer of the
enterprise. The size and purchasing power of the
profit target group can directly determine the
business profit of the enterprise. Tencent Games'
profit targets are gamers. The more gamers, the better
the profitability of Tencent Games. Tencent quickly
grabbed market share in mobile games while
maintaining its messaging business. The constituent
elements of profit patterns were based on virtual
currency and network advertising profit point as the
core, with individual consumers as the main target of
profit, to pay for value-added services and
advertising revenue as the main source of profits, in
cooperation with other manufacturers to expand
overseas, the development game live platform for
profit leverage, vertical integration to strengthen
innovation to enhance technical barriers and value
chain for profit barrier.
6.2.2 Main Profit Model of Tencent Game
Table 2: Profit data of Tencent.
(One million RMB)
Income 138.259 114.883
Gross profit 62,745 53.210
Operating profit 52,487 39,311
Profit during the period 43.022 32.454
The equity holders of
the Company shall
make a profit
42,587 33,107
financial reports into
the Compan
Equity holders shall
account for a profit
34.039 30.153
Earnings per share (RMB per share)
Basic EPS 4.472 3.491
Diluted EPS 4.387 3.437
Non-FIRS earnings per
(RMB per share)
Basic EPS 3.574 3.180
Diluted EPS 3.504 3.130
According to data from table 2, Tencent Game's
value-added business revenue in 2021 was
significantly higher than that in 2020, mainly driven
by revenue growth from games such as King of
Glory and PUBG Mobile. There are two main profit
Online advertising business. Internet companies
such as Google, Facebook and Alibaba have already
invested heavily in advertising and generated huge
revenue. Tencent's revenue in the first quarter of
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2020 was 114.883 billion RMB, increased 26%
compared to the previous year, with advertising
revenue of 17.713 billion RMB, accounting for 32%.
Value-added service business. Tencent game is a
recharge and charging mode, with "business
diversified profit" as the center, "King of Glory" is a
typical example, all kinds of skins and heroes can be
bought on mobile phones, and surroundings (dolls
and hands) can be purchased through prepaid mobile
phone virtual currency, Tencent users have exceeded
hundreds of millions, so the economic benefits are
very huge (Yang 2021).
According to the data of Tencent's 2020 financial
statements, table 3, table 4 and table 5 are calculation
results of Tencent's liquidity ratios, profitability
ratios and solvency ratios.
Table 3: Liquidity ratios of Tencent in 2020.
Year 2019 2020
Current ratio 1.06 1.18
atio 1.05 1.18
Accounts receivable
Inventory turnover
Current ratio: It means Tencent had a better
capacity to repay short-term loans that were
due within the next year than 2019. The
increase shown in both current assets and
current liabilities caused the increase of the
current ratio in 2020.
Acid-test(quick) ratio: The calculation result
shows an increase in acid-test ratio which
indicates that Tencent had strong growth,
quickly able to convert receivables into cash
and comfortable in its financial obligation
coverage. Due to the fact that Tencent had a
increased figure on cash (40%) and accounts
receivable (25.5%).
Accounts receivable turnover: In 2020,
Tencent had a better account receivable
turnover, and it showed a short time between
credit sales and cash receipts. The figure
slightly decline due to the fact that Tencent
had a better figure on accounts receivables.
Tencent had a low accounts receivables
turnover days due to the fact that the
company have a longer payment contract
Inventory turnover: In 2020, the inventory
turnover days of Tencent had a slightly
increased, which indicates that the company
had a better ability to make profits.
Table 4: Profitability ratios of Tencent in 2020.
Year 2019 2020
Profit mar
in 25.42% 33.22%
Asset turnove
0.45 0.42
Return on assets 11.43% 14.00%
Return on common
stockholders' e
20.73% 23.63%
er share 9.86 16.84
Price-earnings ratio 33.78 41.21
Payout ratio 10.54% 10.90%
Profit margin: Revenues from Value-added
Services, Online Advertising as well as Fin
Tech and Business Services were all
increased in 2020. The cost of revenue
reasonably increased, proves that Tencent did
well in maintaining revenue growth in the
main business, at the same time, paid
attention to the cost control.
Asset turnover: Tencent used assets less
efficient than 2019. The main reason why
there was a downward trend is that the
company increased its investment in assets
by 2020, especially the investment in Non-
current assets.
Return on assets: The increase in return on
assets shows that Tencent uses assets more
efficient than 2019. Tencent did a good job
in cost control, only showing a slight
increase in Selling and marketing expenses
and General and administrative expenses.
Return on common stockholders' equity: It is
a profit indicator that shareholders are
concerned about. It shows that for every
dollar a shareholder invests in Tencent, they
can create about $0.24 in value, in addition to
Earnings per share: On the whole, Tencent's
EPS is showing a growth state. Earnings per
share of the Company's common
shareholders rose to 16.84 from 9.86. Both
show an upward trend in Tencent’s annual
report. Net income increased from RMB
93310 million in 2019 to RMB 159847
million, a significant increase, reflecting not
only Tencent's good operating performance
An Overall Analysis of Tecent’s Business Model
and increased revenue from its main
business, but also Tencent's good cost
control. The number of common shares
increased slightly. This is also a good
phenomenon, during this period, Tencent's
visibility has increased, and the enterprise
has a great reputation.
Price-earnings ratio: Compared with 2019,
Tencent's the price-to-earnings ratio for 2020
has improved significantly, indicating that
investors' confidence in Tencent, an internet
company, has improved under the epidemic.
Tencent's annual net profit growth is very
large, and the return on investment in
Tencent is relatively faster, so Tencent
should get a trading premium at a higher
valuation. Tencent's market share is large,
and its main business has unique selling
points, which are more extensive than the
other companies, thus strengthening
Tencent's pricing power. As far as managers
are concerned, Tencent's managers are
trusted by many people and may lead to a
rush of investors. Finally, Tencent's profit
quality is high. The earning cash ratio is a
good measure of it. It has been calculated
that Tencent's net cash from operating
activities to net income ratio is greater than
one, showing a volatile but relatively stable
state, indicating that Tencent has more cash
that can be allocated according to its own
wishes, the corresponding repayment ability
and the ability to pay cash increased,
resulting in an increase in Tencent's P-E
Payout ratio: Tencent's dividend payout ratio
in the past two years was relatively stable
between ten and eleven percent. Dividends
distributed in 2020 were relatively higher.
Tencent pays out a smaller percentage of its
earnings to shareholders as dividends, giving
it a more sustainable than others. A smaller
payout ratio point to Tencent's reinvestment
strategy. It reinvests the bulk of its earnings
for new facilities and other operating needs,
to expand operations and promote the
development of the company.
Table 5: Solvency ratios of Tencent in 2020.
Year 2019 2020
Debt to assets ratio 48.8% 41.7%
Time Interest Earned 24 times 6.9 times
Debt to assets ratio: was 48.8% in 2019 and
41.7% in 2020, this ratio was better than the
previous year, which means that the
improvement of solvency.
Time Interest Earned: The higher the interest
expense multiple, the higher the ability to
pay interest. As Tencent's long-term
solvency decreased, its security and stability
declined either. Therefore, Tencent should
take measures such as reducing debt to
increase the interest coverage ratio, and not
keep it low until it is lower than 1 at last.
Through an in-depth analysis of Tencent's business
status, this paper puts forward the following
suggestions for Tencent: improve its ability to cope
with adverse changes in policies to better cope with
risks in the future; strengthen the attention to middle-
aged and elderly users; and put forward suggestions
for improving the independent research and
development capabilities and web games in games in
view of the serious homogenization of Tencent's
game products and the lack of core technologies and
high-end talents. It also summarizes the common
problems existing in Internet enterprises, and puts
forward suggestions for other Internet companies to
seize the opportunities of the times, conform to the
economic development situation, accurately locate
the market and target users, and accelerate the pace
of innovation, so as to provide reference for the
future development of Internet enterprises.
8.1 Our Advice
Tencent company is a leading enterprise in the game,
should strengthen the overall layout of the game.
Representative end games similar to NetEase games
are Fantasy Westward Journey Computer Version,
World 3, Against the Cold Water, etc. Representative
mobile games of NetEase games are Fantasy
Westward Journey mobile game, A Chinese Ghost
Mobile game, Onmyoji and so on. On the whole,
NetEase games have more kinds of game products
and richer layout. This is Tencent to strengthen the
Research significance: The significance of this
study is not only to analyze Tencent's financial status
and business status from 2019 to 2020 and the
comparison with netease, but also to analyze the
future development direction of Tencent that should
focus on the game industry.
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
Because of the booming development of the
game industry, Tencent not only brought huge
economic benefits, and even surpassed its competitor
NetEase for a time.
8.2 Future Studies
Tencent's future development direction should focus
on the development of the game industry and
innovative development of new games. Not only in
the development and construction of online social
8.3 Limitations
8.3.1 The Lack of Innovation and Serious
Homogenization of Developers
Compared with foreign countries, domestic game
companies lack core technology to establish game
differentiation and independent innovation ability in
game development, so they are more inclined to
increase capital investment to buy game copyright.
Such as mobile game developed by foreign
companies "after tomorrow", netease directly to buy
its copyright, obtains the good market response, lead
to directly purchase foreign copyright as a shortcut to
research and development of the domestic game, and
even some companies didn't get the original
authorization, direct copying foreign game, so
appeared in recent years several disputes about
mobile game works.
8.3.2 Lack of Core Technology and High-
end Talents
In addition to the lack of innovation, China's mobile
game production quality is low, the lack of quality of
the mobile game industry is also limited to further
development. For example, some domestic mobile
game engines, such as CoCOS2D-X and WiEngine,
are developed by foreign companies, and these patent
royalties also increase the cost of domestic
companies. In addition, some game rendering and
other later technologies are not mature enough
compared with foreign countries. In terms of
technology, this paper still has certain dependence on
foreign companies, which makes Chinese games
unable to compete with foreign countries in terms of
picture quality and fluency.
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An Overall Analysis of Tecent’s Business Model