Games and Advertising Lift Tencent to Record First Quarter Profit

WeChat now has more than a billion users

WeChat now has more than a billion users

Asia's second-most valuable listed company said on Wednesday net profit for the first quarter was 23.29 billion yuan (US$3.66 billion), beating the average analysts' estimate of 17.5 billion yuan.

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.

The results are likely to please Tencent's army of investors. That was buoyed by a one-time gain of nearly 7.6 billion yuan as the value of investments in arenas from video streaming to news content rose.

China's largest social network and gaming company defied fears that outsized spending would hammer profitability. "Analysts were expecting a drag on margins because of increasing contribution from cloud and payments, but it looks like Tencent was pretty good at controlling costs".

Tencent reported a 111% rise in "other" revenue in the quarter to 15.96 billion yuan on growth in payment solutions and cloud services. The company secured the rights to distribute both "battle royale" games in China and beyond and said it is just beginning to monetize them. Naspers Ltd., which as Tencent's top shareholder is often regarded as a proxy for the Chinese firm, rose more than 6 percent Wednesday.

"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. Its share price has slipped to 36 times expected earnings, down from 43 times at its recent peak in March, according to S&P Global Market Intelligence.

Its gaming business drove revenues at Tencent during the quarter. The company announced that had seen growth in the double digits related to the number of daily active users for that game.

Honour of Kings continues to be a core source of earnings. Tencent owns a stake in Epic Games, the developer of "Fortnite". Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter.

"We will continue to invest in improving our own products as well as enabling services for our partners", founder and Chief Executive Officer Ma Huateng said in a statement.

Social networks revenues increased by 47% to RMB18.1 billion as WeChat user numbers passed 1.06 billion.

Fortnite is the other game that is driving a strong quarter. "Honour of Kings was a major contributor for mobile gaming revenue".

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