China’s Tencent to ramp up cloud and payments businesses after reporting 43pc profit growth

PUBLISHED : Wednesday, 16 November, 2016, 7:24pm
UPDATED : Wednesday, 16 November, 2016, 10:49pm

Chinese internet powerhouse Tencent Holdings is looking to ramp up its cloud and payments businesses after reporting a lower-than-expected quarterly profit for the three months to September 30 as spending on content and marketing increased ahead of its 18th year anniversary.

In a filing to the Hong Kong stock exchange on Wednesday, Tencent said its third-quarter net profit grew 43 per cent to 10.65 billion yuan (HK$12.05 billion), up from 7.44 billion yuan in the same period last year, on the back of strong revenue from its smartphone games and social performance advertising businesses.

That fell short of the estimated 11.68 billion yuan from a consensus forecast of analysts surveyed by Bloomberg, as the company boosted spending on content and marketing during the period.

Total revenue climbed 52 per cent to 40.39 billion yuan from 26.59 billion yuan a year earlier, ahead of the consensus estimate of 39.02 billion yuan.

Tencent chairman and chief executive Pony Ma Huateng said in a statement that the company’s mobile games and advertising businesses had “above industry year-on-year revenue growth rates and continued to generate healthy margins”.

We have sought to enrich the lives of users through technology
Pony Ma Huateng, Tencent chairman

“For key infrastructure platforms supporting our ecosystem, specifically payment and cloud services, we saw significant progress in adoption and usage. We will continue to invest in these strategic areas,” Ma said in a conference call with analysts and journalists.

The company’s payments business is also seeing higher growth margins than its cloud business.

“Payments is the higher contributor [in terms of growth margins]. Part of it is that our charges on people withdrawing cash have started coming into full force, and when we launch a lot of promotions ... [it] induces a lot of transactions for the offline merchants,” said Tencent president Martin Lau, adding that Tencent generates revenue as well as profits off such transactions.

The company reported 36 per cent year-on-year growth in its value added services business segment to 27.97 billion yuan. This includes mobile and online games as well as social networks QQ and WeChat, which is marketed as Weixin on the mainland.

Tencent said smartphone games revenue jumped 87 per cent year on year to 9.9 billion yuan, driven by major titles such as Honour of Kings that had 40 million daily active users at the end of September.

However, that missed the Citi Research estimate of 95 per cent year-on-year growth in mobile games revenue to 10.45 billion yuan, but was in line with the Nomura forecast of an 87 per cent increase to 10 billion yuan.

Monthly active user accounts on QQ advanced 2 per cent to reach 877 million in the third quarter, while combined monthly active users on WeChat and Weixin grew 30 per cent to 846 million.

Revenue from Tencent’s online advertising business rose 51 per cent year on year to 7.45 billion yuan, bolstered by gains made from Weixin “Moments” campaigns and its mobile news app.

Shenzhen-based Tencent marked a milestone on November 11 – the 18th anniversary of its founding.

For China’s e-commerce industry, that annual date also represents the world’s largest online shopping festival, known as Singles’ Day.

“Looking back 18 years, Tencent began by connecting people via its first messaging platform,” Ma said. “Since then we have sought to enrich the lives of users through technology, prompting us to expand from communications to social networking, digital media, digital entertainment, and a world-leading technology payments and infrastructure.”