“We will continue to drive innovation, including through generative AI, where we are providing a library of models to our partners via our Tencent Cloud Model-as-a-Service (MaaS) offering, as well as refining our proprietary foundation model.”

Tencent had 104,503 employees at the end of June, down from 106,221 at the end of the first quarter. The company’s shares closed 1.1 per cent lower at HK$328.8 in Hong Kong on Wednesday ahead of the earnings announcement.

Beijing’s scrutiny of the increasingly powerful tech sector over the past few years has hit Tencent hard, forcing the company to cut jobs and investments, even though Beijing recently vowed to support the platform economy. Tencent is looking for new growth opportunities, including joining the heated competition among Chinese tech giants to launch ChatGPT-like products.

In February, the company assigned its top scientist to establish a team to develop a ChatGPT-like service. Earlier this month Tencent began internal testing of its self-developed Hunyuan Al model in various products including cloud computing, advertising and video games. In June, the firm launched its industry-oriented large language model (LLM) service aimed at a wide array of traditional sectors, from finance to media.

Talking about the Tencent Cloud Model-as-a-Service (MaaS) offering, president Martin Lau Chi-ping said in the earnings call that “initially it will apply to large companies in verticals including tourism, public services, financial services and retail”, adding that it could benefit smaller companies as the business model evolves.

Revenue from online advertising jumped 34 per cent to reach 25 billion yuan, as the fastest-growing segment for Tencent in the quarter. The growth was driven by Video Accounts, Tencent’s short video platform inside WeChat, which raked in 3 billion yuan in advertising revenue in the second quarter.

Combined monthly active users for WeChat and its domestic version Weixin reached 1.327 billion by the end of June, while the short video platform inside the app saw its user time spent almost double year-on-year, according to the company.

Tencent said that its advertising revenue was also boosted by the improvement of its machine learning system.

“Growth in advertising revenue beat consensus estimates as we saw the recovery in ad spending from main clients of the e-commerce and gaming industries,” said Shawn Yang, managing director at Blue Lotus Capital Advisors. “Clients including Alibaba have been spending big during the online shopping festival 618.”

The video gaming business, which contributed to nearly one-third of Tencent’s revenue, showed slower growth. International game revenue increased by 19 per cent to 12.7 billion yuan, while domestic sales were flat at 31.8 billion yuan.

“The performance of the gaming business failed to meet investors’ expectations,” Yang said. “It was mainly due to the weak product portfolio, including the poor performance of older games.”

Tencent said the flat growth in domestic games- which it attributed to a lack of popular commercial releases during the period- would be temporary. “Our domestic game revenue should resume year-on-year growth in the third quarter of 2023,” Tencent said.

“Across all these different segments that we have significant businesses in, we have seen the regulatory environment trending towards normalisation as well as more supportive overall steps,” Lau said in the earnings call.

The company’s fintech and business services segment saw revenue increase by 15 per cent to 48.6 billion yuan, roughly equal to the 14 per cent growth in the first quarter, with growth in fintech services supported by expansion in both offline and online commercial payment activities.