With almost 1 billion WeChat users, Tencent’s Q1 revenue beats estimates

Sales at China’s largest social network operator jumped 55 per cent in the first quarter on mobile games and online advertising.

PUBLISHED : Wednesday, 17 May, 2017, 5:34pm
UPDATED : Thursday, 18 May, 2017, 5:53pm

Chinese internet giant Tencent Holdings on Wednesday posted record-high revenue for the first quarter of this year on the back of a strong performance in mobile games, online advertising growth and a rise in digital subscriptions.

Revenue soared 55 per cent to 49.6 billion yuan (US$7.2 billion), beating estimates of 46.4 billion yuan in a Bloomberg poll of analysts.

Tencent, the world’s largest video game company by revenue, also reported a 58 per cent jump in net profit to 14.5 billion yuan, beating projections of 13 billion yuan.

Its mobile game Honour of Kings, which was the top-grossing smartphone title in China last year, had more than 50 million daily active users as of December 31. Tencent said it also plans to adapt hit novels and anime into mobile games that will be available to users on its social media and messaging platforms WeChat and QQ.

In a conference call with analysts, Tencent president Martin Lau Chi-ping said the company plans to expand its gaming presence overseas.

“We’ll continue to build that presence, through investments and acquisitions ... We’re going to launch our self-developed games over time into the overseas market,” Lau said.

Benjamin Wu, a senior analyst at Pacific Epoch, estimated that the Honour of Kings mobile game generated about 3 billion yuan in revenue for Tencent in the first quarter, and expected the company’s strong growth in gaming to continue.

“Tencent licenses a lot of key titles from third-party developers, and maintains a strong relationship with overseas and local game developers in China, such as Shanda and Kingsoft,” Wu said. “Tencent’s games, such as Honour of Kings and Dragon Nest, are the key drivers of [its mobile gaming business] growth right now.”

Tencent, which also operates China’s dominant social messaging platform WeChat, has more than 937 million people using the app to message friends, order food online and even book taxis. In January, the company launched its “mini programs” initiative, which allows users to access services like bike-sharing or photo-editing without having to download a full-version of the app.

Shenzhen-based Tencent posted 6.89 billion yuan in online advertising revenue for the first quarter. In a statement, the company said that its advertising business delivered “robust expansion”. The company credited Tencent Video and Tencent News as key contributors to its media advertising business and WeChat for its social advertising business.

Tencent said it is still heavily investing in expanding its video platform, adding that it did not expect to recover losses in the near term as it continues to spend on original and licensed content.

“The video product for us is very much in investment mode, it is heavily loss-making and we expect it to remain loss-making for the foreseeable future,” said James Mitchell, Tencent’s chief strategy officer. “But it is gratifying that while we are incurring those losses, we are also seeing growth in traffic to some extent in video advertising revenues and more substantially in growth in video subscription revenues.”

We’re going to launch our self-developed games over time into the overseas market
Martin Lau, Tencent president

Tencent’s video subscription revenue tripled year on year thanks to popular television drama titles, such as its in-house production Candle in the Tomb.

The company’s shares rose slightly on Wednesday, closing up 0.39 per cent to HK$259.80 on the Hong Kong stock exchange ahead of its earnings results. Its shares have gained 37 per cent this year, placing the stock’s growth just behind e-commerce rival Alibaba group, whose New York-listed shares rose 41 per cent in the same period. Alibaba owns the South China Morning Post.

Last June, Tencent spent US$8.6 billion to acquire up to an 84 per cent stake in Finnish mobile game developer Supercell.

Pony Ma Huateng, Tencent’s chairman and chief executive, said in March that the firm would also invest heavily in cutting-edge technologies such as security, cloud computing, big data and artificial intelligence “to position us for the next wave of growth”.