Tencent, the Chinese Internet giant that’s been trying to make a splash against its country’s E-commerce giant Alibaba, doesn’t seem to be keeping up with its plan as Tencent’s third-quarter earnings report shows the company posted a 81 percent decrease year over year in its E-commerce revenue.
Tencent attributed the drop in its E-commerce revenue to the company’s decision to shift its traffic to its E-commerce partner JD.com, one of its strategic investments to help in the marketplace competition. In March, Tencent bought a 15 percent share in JD.com to become a strong competitor to Alibaba, Bloomberg reported at the time, but it appears that investment only weakened Tencent’s own E-Commerce revenue. That move, of course, was before Alibaba had its record-breaking IPO in September.
Overall, the company saw a $3.23 billion revenue increase (19.8 billion yuan), which was a 28 percent increase from last year’s third quarter. And though the company saw a net profit growth of 46 percent ($924 million), that result came in below analyst expectations of 57 percent, according to the Wall Street Journal. The company’s E-commerce plan was explained by James Mitchell, the company’s chief strategy officer, during the earnings call.
“Our eCommerce [is] consistent with the strategic transaction of our eCommerce businesses in transfer of traffic to JD.com, our eCommerce transaction revenue declined sharply…down 65 percent quarter-on-quarter. During the third quarter, we began migration at Yixun from our principal model where we report TMB as revenue to a hybrid principal marketplace model by report the commissions this revenue. The different accounting treatment naturally results in a substantial decline in revenue although not in gross profit,” he said during the call with analysts.
According to the company’s earnings release, Tencent’s E-commerce business dropped to $74.9 million (459 million yuan), in large part because it folded its E-commerce business into JD. That move was done to generate more traffic by providing users of WeChat easy access to JD.com.
An International Business Times article analyzing the Tencent earnings reported that the disappointing third-quarter results show that Tencent has put its global E-commerce ambitions on hold.
“Even as Alibaba makes plans to expand into a number of Western markets, including the U.S., China’s other e-commerce giant said it now intends to invest less in international growth, at least in the near term,” the article said. “But with domestic growth slowing, Tencent — which trades on the Hong Kong Stock Exchange — has pulled back efforts to market and sell its services abroad. The company reduced spending on overseas sales and marketing in the third quarter, Chief Strategy Officer James Mitchell said during a conference call with analysts.”
Although E-commerce revenue was down, the company did see an increase in gross margin for E-Commerce transactions, which was up 25 percent, up 19 percentage points year over year from negative 7 percent last year. An analyst did ask about E-commerce transactions on mobile platforms but Mitchell did not provide numbers — though he did give insight into the company’s E-commerce vision.
“In E-commerce we don’t disclose the actual numbers but I would say two points; number one is in terms of – we have always said for E-commerce right we would like to create two different experiences, the first one is a centralized entry point for market where sort of you can find any product that you want to find and that’s the entry points of our shopping channel within Weixin and within Mobile QQ. And I would say due to the hard work between the two teams, the JV team and our teams, there is a continuous increase in terms of the sell through in those entry points, that’s sort of, on our centralized E-commerce,” he said in the earnings call.
“In addition to that, we would like to catalyze the growth of the decentralized E-commerce within our ecosystem, basically different merchants they would be able to form relationship either themselves or through a third-party platform like JVs, open platform in order to transact directly with the users. And with that we actually have seen a pretty encouraging signs of results and we’re seeing a pretty encouraging trend of growth of decentralized E-Commerce. I think these are the two points I would say with respect to E-commerce within our social network.”
In terms of reaching an audience on Mobile, Alibaba wasn’t shy in sharing its mobile active users as its mobile commerce apps hit 217 billion users. Alibaba also recently released its own messaging app, Laiwang. Tencent doesn’t provide E-Commerce figures, but just from looking at Tencent’s largest mobile audience, Mobile QQ hit 820 million monthly active users and and Weixin and Wechat hit 468 million monthly active users combined. Specifics on mobile payment figures weren’t released, but Tencent CFO John Lo did provide insight into the company’s mobile payment plan.
“In terms of our mobile payment, the number of users have been actually going quite nicely and as you can see we have leveraged the same infrastructure of our mobile payments to power two different mobile payment solutions” Lo said in the earnings call “One is Weixin payment, which has been growing, and we also have launched the Mobile QQ Wallet which leverages the same mobile payment infrastructure and that has also been growing very nicely and there is sort of new – there is an overlap actually between the two payments loop just that you these two solutions have their own use base and together they represent pretty strong growth of our payment solution.”