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Tencent blows past estimates as WeChat, games drive growth

16 May 2018

Asia's most-valuable company Tencent Holdings pulled a first-quarter surprise on Wednesday, announcing a 61 per cent increase in profits on a strong contribution from its mobile games and online advertising businesses. 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.

However, those feats were dispelled by the technology giant. Revenue reached 73.52 billion yuan equal to $11.5 billion compared to expectations on Wall Street of 72.04 billion yuan. Revenues were up 48 percent year-on-year. That compares to the 17.4bn-yuan average of estimates compiled by Bloomberg.

Margin improvement: Operating margin was 39%, up 42% on the year and 8% on the quarter.

Tencent continues to draw the lion's share of its business from gaming, while counting on advertising and finance via WeChat to drive future growth. 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. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter.

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. Revenue from Value Added Services, which includes online games and messaging, rose 34 percent to 46.9 billion yuan.

"Fortnite" is the second game driving Tencent's strong quarter. It's a tournament-style game that is popular in e-sports, which is competitive video gaming. Epic Games developed Fortnite.

That game has gone viral with more than 40 million active users monthly across consoles and PCs. It is available as well on mobile.

Earlier this month, an online essay criticised Tencent's apparent focus on investments over product innovation, sparking a heated debate in China.

Shares of Tencent have come under pressure of late and are off by 17% from an all-time high from January.

Tencent blows past estimates as WeChat, games drive growth