Investments weigh down internet giant

Spending on mobile and e-commerce businesses slows third-quarter revenue growth to 34pc at Tencent, leaving profit below market targets

PUBLISHED : Thursday, 14 November, 2013, 3:10am
UPDATED : Thursday, 14 November, 2013, 1:10pm

Tencent, the mainland's largest listed internet company, posted the lowest revenue growth in six years in the third quarter while net profit missed expectations, weighed down by investments in its mobile and e-commerce businesses.

The Shenzhen-based company reported a 34.3 per cent year-on-year jump in quarterly revenue to 15.5 billion yuan (HK$19.7 billion).

Net profit rose 20 per cent to 3.87 billion yuan. That compares with the 4 billion yuan average estimate in an analyst survey.

Since Tencent launched in August its latest version of WeChat, which is connected to an online payment service, investors have been hoping the firm will start making profits from its mobile messaging application.

Xue Yongfeng, an analyst at researcher Analysys International, estimates the games on the WeChat platform will contribute 1.5 billion yuan to 2 billion yuan this year. But he said Tencent would have to keep spending on mobile products to compete with other internet giants.

"This is the same for every player in the industry," Xue said.

Tencent saw revenue from social networks, including WeChat and QQ, grow 3.7 per cent year on year in the quarter to 3.2 billion yuan and a 124 per cent increase in the number of active users of WeChat to 271.9 million.

Selling and marketing expenses increased 79 per cent to 1.47 billion yuan from the third quarter of last year.

"This primarily reflected a step-up in marketing activities related to WeChat in international markets and an increase in advertising spending on other products and platforms such as online games, e-commerce platforms and certain mobile products," the firm said in a filing to the Hong Kong stock exchange.

Online games, which contributed 75 per cent of the company's total revenue, rose 24.9 per cent to 11.6 billion yuan. Xue attributed it to a major school holiday.

E-commerce income more than doubled to 2.36 billion yuan from 1.13 billion yuan. Tencent has expanded into e-commerce with platforms including business-to-customer and rivalling Alibaba Group.

Tencent shares fell 4 per cent to HK$392.60 yesterday, while the Hang Seng Index dropped 1.9 per cent. The stock has lost 12.3 per cent since October 21, when it reached a record HK$447.80.

Lyncean Securities managing director Francis Lun Sheung-nim said: "I think it will fall to HK$380 [today] after the disappointing results."


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