Tencent profit rises above estimates

Ruben Fields
May 17, 2018

Chinese social media and gaming giant Tencent reported on Wednesday a 61 per cent rise in net profit for the first quarter of the year, beating estimates, thanks to strong mobile games revenue. The company is once again worth more than half a trillion dollars.

However, those feats were dispelled by the technology giant. Revenue was 48% up on a year on year basis. Tencent did appear to beat forecasts for net profit. Net profits increased 65% year-on-year to reach $3.82 billion on revenues of $11.7 billion in the three months to end of March.

WeChat and its companion app Weixin for mainland China are adding users at an impressive clip.

Tencent has historically done well in the games space with the PC its cash cow, but past year its smartphone games business overtook that of PC based on revenue.

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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.

Revenue from PC games was flat compared to previous year, but analysts believe the comparison was tough with the 2017 first quarter, and overall its games business was strong. Anchored by its marquee title, the smartphone games business yielded 68 per cent growth in the quarter. Tencent has exclusive release rights for PUBG in China but says the game is "yet to be monetized", implying future additional revenue stream from the title.

"Mobile game growth was very strong, as the first quarter is usually a good season when users spend more time on their devices during the holidays", said Benjamin Wu, a Shanghai-based analyst with Pacific Epoch. The tournament-style game is popular amongst the e-sports, which is competitive video gaming. Developed by Tencent's own studio, the mobile title resembles the popular desktop title League of Legends, whose developer was acquired by Tencent in 2015.

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. It is available as well on mobile. (Fortnite is due to launch in China imminently). In the following months, however, the company's shares came under pressure with increasing costs driving investor fear of lower margins. "The increase primarily reflected growth in revenues from digital content services such as live broadcast, video streaming subscriptions and our music service namely WeSing, as well as from in-game virtual item sales", Tencent said.

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