Tencent surges as profit beats estimates on mobile games, ads

Asia's top internet company sees profit jump 60pc, driven by online games and ad revenue

PUBLISHED : Friday, 16 May, 2014, 1:05am
UPDATED : Tuesday, 21 April, 2015, 11:20am

Shares of Tencent, Asia's largest internet company, jumped the most in more than two years after first-quarter profit soared because of online game sales and advertising revenue from its WeChat and QQ messaging services.

The Shenzhen-based company rose as much as 8.95 per cent as shareholders approved a five-for-one share split. The stock closed up 5.85 per cent at HK$108.80 yesterday.

Tencent's net income soared 60 per cent to 6.46 billion yuan (HK$8 billion) in the three months to March, helped by one-time gains, beating the 4.86 billion yuan analyst estimate.

The company is adding services to software applications including WeChat, known as Weixin on the mainland, as it competes with Alibaba and Baidu.

Tencent is counting on messaging, e-commerce and online games to win a bigger slice of the mainland's 618 million internet users as they migrate towards content on their smartphones.

"Tencent has a great advantage in promoting and distributing its mobile games because it has platforms like WeChat that have a huge user base," said Li Yujie, an analyst at RHB Research Institute.

Non-GAAP profit rose 29 per cent to 5.19 billion yuan, president Martin Lau Chi-ping said, adding that the alternative earnings measure provided a better picture of the quarter's performance. "We've proved that a good mobile platform that provides a lot of user interaction, that captures a lot of usage, will have a lot of monetisation potential."

Revenue rose 36 per cent from a year earlier to 18.4 billion yuan. Online game revenue increased to 10.4 billion yuan, and online advertising revenue rose 38 per cent to 1.17 billion yuan.

Mobile-phone game revenue tripled from the previous quarter to 1.8 billion yuan, according to the filing.

Tencent has introduced 18 games for Google's Android operating system and 16 games for Apple's iOS, including GunZ Dash and Piyush Mubayi, an analyst at Goldman Sachs wrote in a report.

"We see the potential to add more mid-core games and also over time to start introducing some of the harder core titles that are popular in Korea and Japan," said James Mitchell, the chief strategy officer at Tencent.

"Mid-core games" referred to titles that attracted users to play for longer periods of time, therefore spending more money, Mitchell said.

The company's open platform shared five billion yuan in revenue with developers, Dowson Tong Taosang, the president of the social network group, said at a conference last week.

Tencent's social-network business, which includes QZone, a platform that allows users to write blogs and upload photos, helped generate revenue of four billion yuan.

Monthly users of QZone on their mobile devices reached 467 million in the first quarter.