Social networking giant Tencent (00700.HK) has just released a wealth of information about its wildly popular WeChat, including a headline figure that the mobile messaging service now has 570 million active users.
However, you won’t find any meaningful monetary figures, reflecting the slow progress that Tencent is making in commercializing a service that enjoys huge popularity but is also quite costly to operate.
People love to talk about WeChat and how popular it is, but you see far less discussion about how much money Tencent is losing on the service. There’s even less discussion of when it might become profitable.
That said, Tencent is a cash-rich company that can easily afford to keep pouring money into WeChat for the next decade or more until the day when profits finally come.
The big risks, of course, are that investors may not be that patient, and that newer and more popular services could come along.
I did some searching online, and the results seem to reinforce the reality that Tencent doesn’t like to give out information on just how much money WeChat costs to operate or how much revenue it’s bringing in.
One analyst estimated the service might have raked in about US$1.1 billion in 2014, and that could grow to about US$1.5 billion this year. That would equate to a relatively paltry US$2.60 in spending per user each year.
But the latest figures also show that users spend quite a bit of time on WeChat, and it’s far from clear if they actually spend any money for that time.
I’m probably a good case in point, even though my older age of 51 hardly qualifies me as representative of the 60 percent of WeChat users who are below 30 years old.
A quick scan of the WeChat on my smartphone shows that I sent messages to 14 different friends or groups yesterday alone, and I would personally estimate I spent perhaps three to four minutes on average for each of those conversations.
That translates to nearly an hour of WeChat usage during the day, and I’m probably a lower user than most. And how much money did I spend on WeChat during all of that time? Nothing.
That lack of spending is the big challenge for WeChat, though none of that was mentioned in the wealth of data given out at the company’s latest Global Partners Meeting.
After the headline figure of 570 million daily active users, probably the next most interesting data was that 60 percent of those were in the 15-29 age group.
Media reporters like myself know that a more commonly measured demographic is the 18-29 group, which is one of the most highly sought by advertisers due to their relatively high incomes and tendency to spend liberally.
So it’s somewhat significant that Tencent lowered the bottom end of that demographic to 15. That implies that a large portion of WeChat users are in the 15-18-years-old bracket, which have far less money to spend and probably take up huge amounts of air time.
Among the other figures, the most interesting for investors was probably that WeChat users consume 280 million minutes daily on audio chats, translating to about half a minute per user.
That’s another huge expense, since audio technology uses far more data than that for transmitting simple text messages.
In terms of revenue-generating activity, the only significant information is that 15 percent of WeChat users play games. But even that figure could be misleading, since a big portion of those could play free games.
Tencent is certainly trying to make some money off WeChat. The biggest effort in that direction is its equity tie-up with JD.com (JD.US), China’s second largest e-commerce company, which has its own dedicated channel on the platform and is experimenting with other marketing partnerships.
WeChat also has some advertising that pops up from time to time in its popular “Moments” function, but even that is relatively limited.
At the end of the day, I should probably compliment Tencent for its go-slow approach to monetizing WeChat.
The company realizes the service is hugely popular, but also that it needs to be careful not to become too aggressive with its commercialization and risk scaring people away.
Investors certainly seem content to let Tencent use that approach for now, though they could change their minds in the next two to three years if the service keeps eating into the company’s bottom line without any signs of earning its own profits.
Bottom line: Lack of revenue figures in a wealth of new data on WeChat indicates the service continues to lose big money, and could become a drag on Tencent’s profits if commercialization efforts don’t accelerate soon.
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