Tencent blows past estimates as WeChat, games drive growth

Shares of Tencent opened up 7 per cent in Hong Kong on Thursday after ithe company reported better-than-expected first-quarter results. Bobby Yip  Reuters

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. That represented a 61 percent year-on-year rise.

Margin improvement: Operating margin was 39%, up 42% on the year and 8% on the quarter. Smartphone games revenues alone were up 68 percent year-on-year to 21.7 billion yuan, thanks to titles such as "Honour of Kings".

Tencent has several different businesses including gaming and advertising, and owns WeChat, the largest messaging app in China.

"We expect Tencent to consolidate both the PC and mobile games markets", Alex Yao, a Hong Kong-based analyst at JPMorgan Chase & Co., said in a report. Meanwhile, Tencent's overall online advertising business achieved 55 per cent year-on-year growth in revenues.

In the video content sector, Tencent poured a total of $1.1 billion into two rivals in a 24-hour period, investing US$632 million and US$461.6 million respectively in Chinese game-streaming platforms Douyu and Huya in March.

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Tencent is banking next on the latest global phenomenon-"battle royale" games, in which a large group of players shoot each other until only one remains standing. It's a tournament-style game that is popular in e-sports, which is competitive video gaming. It has developed a mobile version of the former that is available globally, while it owns almost half of Epic Games, the developer of Fortnite.

The game has gone viral and has over 40 million monthly active users across PC and consoles. (Fortnite is due to launch in China imminently).

Tencent shares have been under pressure and are down around 17 percent from the record high seen in January.

Tencent's other earnings drivers included its video subscription service, which is similar to Netflix. Company president Martin Lau Chi-ping had warned in March during its 2017 earnings call that this year Tencent would aggressively step up its investments in long- and short-form video content, digital payments, cloud services, artificial intelligence and smart retail, even though it could harm the company's profitability in the short term. WeChat had 1.04 billion monthly active users while the mobile version of QQ - the older of its two social networks - saw users drop 6.4 percent to 805.5 million at the end of the quarter.

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