Mark Zuckerberg might need to pull his wallet back out. The Facebook Inc (NASDAQ:FB) CEO justified the $19 billion acquisition of WhatsApp last month by saying any service that has the potential to connect a billion people is enormously valuable. At the time WhatsApp had about 500 million users, and today we found out that Tencent Holdings Ltd (HKG:0700)’s instant messaging service WeChat isn’t far behind.
In its 4Q13 earnings released today, Tencent Holdings Ltd (HKG:0700) revealed that WeChat (Weixin in China) had 355 million monthly active users at the end of the year, and like WhatsApp it’s not just used for sending text messages.
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WeChat planned as a multi-functional platform
“With the launch of new services such as Game Center, Official Accounts, and Weixin Payment, as well as the increasing adoption of Moments, Weixin is evolving from a pure communications service into a multi-functional platform,” the company wrote in its earnings statement.
But unlike Zuckerberg’s plans for WhatsApp, Tencent Holdings Ltd (HKG:0700) isn’t concerned with growing its service as quickly as possible. The company said that even though WeChat has had impressive international growth, they’re much more concerned with improving user engagement. In other words, they’d rather convince the users they already have to spend more time using WeChat than persuading new people to use it sparingly.
Tencent has falling margins as it moves into mobile
Tencent Holdings Ltd (HKG:0700) had a strong 2013 as well. Total revenues were up 38% over 2012 (60.4 billion RMB or $9.9 billion) and operating profits grew 24% (19 billion RMB, $3.1 billion), which meant that operating margin fell from 35% in 2012 t0 32% last year.
Fourth quarter revenues increased 9% sequentially (17 billion RMB, $2.7 billion), which was a 40% gain year-on-year. Operating profits fell 1% sequentially (4.8 billion RMB, $779 million), though that was still a year-on-year increase of 28%. Operating margin fell from 31% in the third quarter to 28% in the fourth quarter.
During 2013, we achieved sustained growth in revenue and earnings, while further embracing mobile internet and starting mobile monetization,” said Tencent chairman and CEO Ma Huateng. “We migrated our flagship QQ service from a primarily PC to a primarily smart phone experience, and enhanced our market-leading Weixin/WeChat app from a communications tool to a multi-functional platform.”
The company also noted that falling margins weren’t a surprise, or necessarily a problem, since 2013 had been a year of transition to mobile services which have not yet been fully monetized.