Games and Advertising Lift Tencent to Record First Quarter Profit

Warnings that Tencent, Asia's highest-valued tech company, might suffer a rare poor quarter of business proved unwarranted after the company smashed analyst expectations for its latest earnings thanks to its fast-growing mobile games business.

China's largest social network operator reported net income of 23.29 billion yuan (US$3.65 billion) in the quarter ended March 31, beating average market expectations by about 30 per cent. Revenue reached 73.53 billion yuan, up 48 per cent from the same time a year ago, driven by online advertising, online games and messaging services.

Tencent has stepped up its investment activities over the past year, not only making deals in areas like gaming, entertainment and frontier technology, but also in retail and e-commerce - traditionally viewed as rival Alibaba's turf.

Another title - Honour of Kings - was the world's highest-grossing mobile game previous year thanks to its China-based users and Tencent has been pushing it to worldwide audiences.

Tencent is back in the $500 billion club. That represented a quarter-on-quarter rise of 12 per cent.

"It is a matter of a fact that the competition is actually very heavy, there have been a lot of subsidies provided in the market by our market peers, and as a result we have to follow suit", Tencent President Martin Lau said on an earnings call.

He added that Tencent's WeChat ecosystem gives it a unique position to take advantage of an enlarged market.

Revenue rose 48% to 73.5bn yuan, compared with analyst estimates for 70.8bn yuan. However, the mobile gaming market has exploded in recent years, especially in China, and Tencent has ridden the growth to the bank.

Fortnite is the other game that is driving a strong quarter. The mobile version of Fornite was an instant hit in the United States market after its March launch, becoming the highest-grossing iOS game there.

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.

Tencent's shares have fluctuated sharply this year. Tencent attributed the increase to growth in digital content services such as live broadcast, video streaming and in-game virtual item sales, and its Karaoke app WeSing. The company is once again worth more than half a trillion dollars.

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.

(Copyright © 2015. All Rights Reserved.)
 
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