Published: Thu, May 17, 2018
Business | By Kate Woods

Tencent posts impressive first quarter profit growth

Tencent posts impressive first quarter profit growth

While anxious investors had sold off more than US$90 billion of stock since January, Tencent posted a 61 percent jump in net income to 23.3 billion yuan (US$3.7 billion) in the March quarter, outstripping estimates by nearly a third.

The results are likely to please Tencent's army of investors.

There's an argument to be made for stripping out extraneous items because Tencent runs the games and social side of the business itself, but doesn't have direct control over investees. In January Tencent partnered with e-commerce companies Suning Commerce Group, and Sunac China Holdings in a 34 billion yuan investment in Wanda Commercial Properties, a Chinese retail operator, forging one of the world's biggest alliances between the new economy and bricks-and-mortar businesses.

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The results were announced after the close of the Hong Kong stock market, where Tencent shares are traded. Revenue reached 73.52 billion yuan equal to $11.5 billion compared to expectations on Wall Street of 72.04 billion yuan.

Other earnings drivers for Tencent included a video subscription service that is similar to that of Netflix. Another title - Honour of Kings - was the world's highest-grossing mobile game a year ago thanks to its China-based users and Tencent has been pushing it to worldwide audiences.

Tencent posted a 61 per cent jump in net profit on a 48 per cent rise in revenue for the first three months of the year, beating consensus estimates. That helped drive a 55% local currency gain in advertising revenue to 10.69 billion yuan. Tencent has the rights to run the game in China but said that it is "yet to be monetized", highlighting the potential future of the title. Fortnite has been developed by video game developer Epic Games who Tencent has a stake in - the game is now unavailable in China, but there are plans to launch the game in the region in the coming months.

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Tencent had warned in March that heavy spending could crimp profit, sending shares sharply lower. PC-based games, meanwhile, took in sales of 14.1 billion RMB ($2.2 billion) to remain flat over the past 12 months. (Nasdaq: FB) as the world's fifth-most valuable company.

The company is exploring ways to integrate short video into its social network platforms, Tencent chairman and chief executive Pony Ma Huateng said in March during annual parliamentary meetings in Beijing.

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