Tencent's 'WeChat' instant-message app will challenge Sina

Mobile instant-message application user base may double to 400m in three years, analysts say

PUBLISHED : Saturday, 29 December, 2012, 12:00am
UPDATED : Saturday, 29 December, 2012, 4:58am

Just two years ago next month, Tencent Holdings introduced a mobile instant-message application called WeChat. It already has 200 million users, including Lai Jingkui, a teacher in Zhuhai in the south, who uses the "Drift Bottle" function to find friends.

While Lai, 23, is still looking, Tencent has found a hit.

WeChat's user base could double to 400 million within three years, providing the chance for China's biggest internet company to boost revenue by adding mobile e-commerce and location-based advertising, Core Pacific-Yamaichi International (HK) estimates.

That is welcome news for Shenzhen-based Tencent, which this year faces its second-slowest annual profit growth since it listed on the Hong Kong stock exchange in 2004. The problem: a shift in internet usage from personal computers to smartphones and tablets.

The trend is pulling users away from Tencent's offerings toward competitors like Sina's Twitter-like microblog service, Weibo, which built a user base of 424 million as of September.

Sina is projected by analysts to turn from a loss to a profit in 2012, and net income growth next year is estimated to be more than double Tencent's.

Tencent is counting on WeChat to close the gap.

"Implementation of WeChat will help Tencent get into a new growth stage, as the company has traditionally relied on online games," said Kevin Tam, an analyst at Core Pacific-Yamaichi in Hong Kong. "WeChat can replace online games as a growth driver in coming years."

Tam projects the free WeChat app will begin contributing to sales in 2013. He hasn't forecast the amount of sales yet.

Tencent, founded in Shenzhen in 1998 with an instant- messaging service called QQ, started its QQ Game Portal in 2003.

For the past decade, online games such as Dungeon & Fighter and Cross Fire propelled Tencent's growth and contributed 56 per cent of revenue last year. Now, casual gaming on smartphones and tablets is eating into the growth of gaming on personal computers.

Tencent's net income is projected to increase 24 per cent to 12.6 billion yuan (HK$15.4 billion) this year, according to analysts. That is down from 27 per cent last year, and less than half the 56 per cent profit growth in 2010. It would be the slowest pace since a 9 per cent gain in 2005.

Meanwhile, Sina is projected to rebound from a loss and post a net income of US$25.7 million this year, according to analysts' estimates.

In 2013, growth in profit will outpace Tencent's projected 28 per cent pace, rising 64 per cent to US$42 million, according to the estimates.