Chinese online giant Tencent posts 61% rise in net profit

Tencent Says Subsidy War with Alibaba Set to Continue After Beating Profits

Asia's second-most valuable listed company said on Wednesday net profit for the quarter was 23.29 billion yuan ($3.66 billion), against an average estimate of 17.5 billion yuan from 11 analysts polled by Thomson Reuters. The market had also anxious that Tencent's spending plans for its videos, artificial intelligence and mobile payments could hurt its margins.

The results are likely to please Tencent's army of investors. That helped drive a 55% local currency gain in advertising revenue to 10.69 billion yuan.

China's largest social network and gaming company defied fears that outsized spending would hammer margins. "Analysts were expecting a drag on margins because of increasing contribution from cloud and payments, but it looks like Tencent was pretty good at controlling costs".

Revenue rose 48 per cent to 73.5 billion yuan, also surpassing estimates for 70.8 billion yuan. The company secured the rights to distribute both "battle royale" games in China and beyond and said it is just beginning to monetize them.

But it adjusted earnings of 1.915 yuan, which is equal to 30 cents. Its share price has slipped to 36 times expected earnings, down from 43 times at its recent peak in March, according to S&P Global Market Intelligence.

The results were announced after the close of the Hong Kong stock market, where Tencent shares are traded. That came after Tencent's rare miss in revenue growth the quarter before, which had prompted worries about a slowdown in games sales, its largest profit driver.

The overall online games business was boosted by two major games. The essay, written by veteran tech editor Pan Luan, claimed the company had "lost its dream" by becoming an investment company instead of continuing to develop great products in core areas such as search, e-commerce, information streaming, short video and cloud services. It has developed a mobile version of the former that is available globally, while it owns almost half of Epic Games, the developer of Fortnite. Anchored by its marquee title, the smartphone games business yielded 68 percent growth in the quarter. Tencent executives have signaled a willingness to sacrifice margins in favor of longer term growth in new businesses, though that would depend on growing and engaging a massive user base now primarily confined to China.

Tencent Chairman and CEO Ma Huateng.

In the video content sector, Tencent poured a total of $1.1 billion into two rivals in a 24-hour period, investing US$632 million and US$461.6 million respectively in Chinese game-streaming platforms Douyu and Huya in March.

Fortnite is the other game that is driving a strong quarter.

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