Tencent profit rises 33 per cent but China’s slow economy clouds advertising outlook

PUBLISHED : Wednesday, 18 May, 2016, 6:18pm
UPDATED : Wednesday, 18 May, 2016, 11:36pm

Chinese internet giant Tencent Holdings saw net profit rise 33 per cent in the first quarter to 9.2 billion yuan (HK$10.9 billion), but China’s slowing economy may take its toll on the firm’s online advertising revenue.

“Our brand advertising business could face near-term challenges due to the uncertainties of the macroeconomic environment in China,” chairman Ma Huateng said.

Tencent’s total revenue rose 43 per cent to 32 billion yuan in the first three months of the year. Advertising revenue jumped 73 per cent in the first quarter to 4.7 billion yuan compared with the same period last year, but dropped 18 per cent from the previous three months, traditionally a high season for advertising from e-commerce platforms such as Alibaba, owner of the South China Morning Post, and

Tencent president Martin Lau told a teleconference that there was a general feeling that advertisers were spending their budgets more cautiously.

“In the past, it took two meetings to nail down a certain amount of contract. Now it takes longer and the contract value is smaller,” Lau said. “Companies are keeping more of the budget for later on in the year until they see a clearer macro picture.”

Tencent, which runs China’s most popular social media platforms QQ and WeChat, saw mobile platforms account for 80 per cent of total advertising revenue during the quarter. The monthly number of people using WeChat rose 39 per cent year on year in the period to 762 million.

In March, the company introduced a 0.5 per cent transaction fee for users taking money out of the WeChat wallet, the app’s popular online payment function that rivals Alibaba’s Alipay.

Lau said the measure was aimed at recouping costs and had had “little impact on user activity”. Tencent did not plan to make a revenue stream out of that, he said.

Lau stressed the company’s pay-for-performance advertising business was a long-term enterprise, still at an early stage, and that it would not release ad space rapidly at the cost of user experience.

“I’d like people to reset their expectations,” he said.

“Tencent did not place much advertising on its social media platforms until 2014 and is taking a moderate approach in monetisation. This relatively young business is still at an early, fast-growing stage,” said Marie Sun, senior equity analyst with research firm Morningstar.

Tencent derives 78 per cent of revenue from what it calls value-added services such as games and digital content subscriptions, which grew 34 per cent to 25 billion yuan in the first quarter.

Revenue from online games such as Cross Fire Mobile grew 28 per cent to 17.1 billion yuan.

Chief strategy officer James Mitchell said the online video landscape was getting “extremely competitive” with new market entrants like LeTV.

He said the company would continue to raise cash offshore for investment and acquisitions because most of those deals required US dollars.

Shares of Tencent ended 1.1 per cent lower on Tuesday before the results at HK$161.10. They have risen 5.6 per cent so far this year.