Games and Advertising Lift Tencent to Record First Quarter Profit

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Asia's second-most valuable listed company said net profit for the quarter was 23.29 billion yuan (Dh13.44bn), against an average estimate of 17.5bn yuan from 11 analysts polled by Thomson Reuters. Investors began to worry that their margins were under greater pressure, as the company continued to increase its investment to high-growth markets such as streaming video, digital payment, smart retail, cloud services and artificial intelligence.

Bernstein analysts estimate Tencent's merchant subsidy will be around US$1 billion in 2018 while subsidies by Alibaba's Ant Financial Services affiliate could be as high as US$2-US$4 billion.

Social networks revenues, including from Tencent's video and music business, increased by 47% to 18 billion yuan.

The company is exploring ways to integrate short video into its social network platforms, Tencent chairman and chief executive Pony Ma Huateng said in March during annual parliamentary meetings in Beijing.

Tencent said mobile game revenue hit 21.7 billion RMB ($3.4 billion) during the quarter, up 68 year-on-year.

Tencent has rights to operate that game across China but has said as not yet been monetized, highlighting the potential the title has for the future.

But it adjusted earnings of 1.915 yuan, which is equal to 30 cents.

Shares of Tencent closed little changed before earnings were released. Naspers Ltd., which as Tencent's top shareholder is often regarded as a proxy for the Chinese firm, rose more than 6 percent Wednesday.

The results were announced after the close of the Hong Kong stock market, where Tencent shares are traded. Gaming revenue was up 26%.

The company has, however, been leery of barraging its users with ads - on Wednesday, it declared that it had raised the maximum number of ads that customers see on WeChat Moments, a function similar to Facebook's newsfeed, to just two a day, from one previously. Developed by Tencent's own studio, the mobile title resembles the world's most popular desktop title League of Legends, whose developer was acquired by Tencent in 2015. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan.

Honour of Kings continues to be a core source of earnings.

But overall costs surged 51 percent.

Fortnite is the other game that is driving a strong quarter.

In a battle for the world's largest mobile payment and retail market, Tencent has splashed out billions forging alliances with new partners like Carrefour and subsidising merchants to lure them onto its payment-to-messenger super app WeChat. "Honour of Kings was a major contributor for mobile gaming revenue".

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