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Mark O'Neill

Tencent Holdings draws on its virtual pet service to deliver further growth

Tencent Holdings, the Chinese firm with the biggest online community in the world, said yesterday it was counting on virtual pets to drive growth.

More than 900,000 customers had signed up for the online pet service it began in the second quarter and would launch officially later this year, Tencent chief financial officer Patrick Tsang told a BNP Paribas Peregrine seminar.

The user adopts the 'pet' and then takes care of it. So far, the main animal offered by the firm is a penguin,  but there are a limited number available.

'You must spend time with him every day. If you do not play with him or you feed him too much, he will be sick. You must show love and care. It is very interactive,' Mr Tsang said.

The Shenzhen-based company boasts 173 million active users of its instant messaging service QQ, which it launched in 1999, making it the largest online community in the world. The company listed on the main board in Hong Kong in June last year.

For the first half,  it reported operating profit of 222.16 million yuan on revenue of 634.13 million yuan, after 228.23 million yuan profit on revenue of 528.06 million yuan in the same period last year.

Mr Tsang said that the pets were part of the company's strategy to forge an online identity. 'You dress up, you use cosmetics, you reflect your emotions. This identity is very exciting,' he said.

Other products  Tencent offers include music, search engines, short messaging, games and chat rooms. In the fourth quarter, it will offer QQ Fantasy, a multi-player online game.

Erwin Sanft, a director of China research at BNP Paribas, said  Tencent had been its top stock pick for the  past 15 months because of its massive customer base.

'It is a proxy for growth in entertainment spending, a consumer brand, not so much an IT stock. It used to be 100 per cent reliant on telecoms operators for revenue but has cut that to 70 per cent, with prepaid cards and payment  through banks. People do not feel secure with online payments,' Mr Sanft said.

'Internet value-added services, online identity products and online casual games remain the key drivers,' BNP Paribas said in a research report.

'The strong sales of online identity products indicates the QQ platform has remained the preferred tool for social networking for the younger Chinese generation.'



Online operator marches with the penguin