Games, online video help Tencent top estimates with 69pc gain in third-quarter earnings

Company’s video unit has surpassed 43 million paying subscribers, the largest user base in China’s online video streaming market

PUBLISHED : Wednesday, 15 November, 2017, 6:22pm
UPDATED : Wednesday, 15 November, 2017, 11:53pm

Tencent Holdings, Asia’s most valuable company by market cap, handily beat market expectations as its fast-growing online video streaming unit helped earnings in the quarter to September surge 69 per cent.

“We believe [Tencent Video] has become China’s top online video platform in terms of mobile daily active users and subscriptions,” said Tencent chairman and chief executive Pony Ma Huateng in a statement on Wednesday.

“We believe this success reflects our increasing investment in self-commissioned video content, our improved selection of licensed video content, and our scheduling and audience-management initiatives.”

The Shenzhen-based internet giant reported a 69 per cent jump in net profit to 18 billion yuan (US$2.7 billion) in the quarter ended September 30, up from 10.6 billion yuan in the same period last year.

That surpassed the market consensus of a 16.4 billion yuan net profit in the quarter, according to a Bloomberg survey of analysts’ estimates.

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Ma attributed the gains made by Tencent last quarter to strong revenue growth across multiple business lines, including games, digital content, online advertising and payment-related services.

Total revenue rose 61 per cent to 65.2 billion yuan from 40.4 billion yuan a year earlier, which was ahead of the consensus estimate of 61 billion yuan.

Online games revenue grew 48 per cent year on year to 26.8 billion yuan, driven by Tencent’s popular smartphone game Honour of Kings and new titles, such as the mainland version of Contra Return and Legacy TLBB Mobile.

Benjamin Wu, a senior analyst at Pacific Epoch, said Tencent was on track to “keep its growth momentum in games with a strong pipeline for 2018”.

He expected a new licensed mobile game from Kingsoft to “become a strong driver of significant growth”.

Victor Au, the chief operating officer at Delta Asia Securities, said Tencent has been aggressively “expanding its income channel apart from games, which also generate huge profits for the company”.

Online advertising revenue grew 48 per cent year on year in the third quarter to about 11 billion yuan, lifted by high media advertising on Tencent’s video streaming platform as subscriptions climbed steadily.

Tencent Video has exceeded 43 million paying subscribers, which the company estimated was the largest on the mainland.

Karen Chan, an equity analyst at investment bank Jefferies, recently said tight competition between Tencent Video and Baidu-backed iQiyi means that more lucrative advertising revenue and paying subscribers will likely be cornered by the two Netflix-style platforms.

WeChat, Tencent’s vastly popular mobile messaging-social media-and-payments platform known as Weixin on the mainland, reached 980 million users at the end of September to help drive up usage for Tencent’s digital content business.

“The listing of our online literature platform, China Literature, in November reflects the value of our years of investment in the business,” Tencent’s Ma said.

Shares of Tencent were down 1.3 per cent on Wednesday to close at HK$383, a day after it reached a new high of HK$388.

Morgan Stanley recently raised Tencent’s 12-month share price target to HK$420, up 14 per cent from its previous estimate.

Additional reporting by Celia Chen